24 April 2002 GST/HST Interpretation 39923 - Application of TIB B-039R to Indian Inter Vivos Trusts

Thank you for your query concerning a trust established by an Indian band. You specifically asked us if a trust established by an Indian band can be considered to be a band-empowered entity. You sent us a copy of the trust document to examine.

As the trust document is very similar to a number of trust documents that we have considered in our current review of our trust position, we issue here a general statement concerning inter vivos (non-testamentary) Indian trusts.

The documents that we have examined indicate that an inter vivos trust generally is established by a band in order to acquire land under a specific claim process. Thus, the following policy focuses on the specific claim scenario.

Application of GST/HST to Land Acquired with Funds from Specific Claims Agreements

A First Nation making a land claim, pursuant to a treaty right, is an example of what is called a specific claim. Specific claims may involve a request for payment due to loss of land that was not lawfully surrendered or may result from the government's neglect to pay appropriate compensation for land lawfully taken.

It is common practice for a First Nation to establish a trust to purchase and hold lands with monies paid by government under a specific claim agreement. An issue is whether the tax relief applies on the acquisition of this land.

There is no inherent right for an Indian band to acquire land relieved of tax. A treaty right, the Indian Act, or a statutory instrument such as a remission order, is normally required as authority for the tax relief. (As well certain First Nations may be entitled to a refund when acquiring land in accordance with their self-government agreement and the ancillary implementation legislation.) Where the acquisition of land is provided for in a specific claim agreement, there is normally no Indian Act tax relief available to an Indian band at the time of acquisition as the land is not a reserve.

With respect to certain specific claims, tax relief for the acquisition of land was part of the negotiation. These specific claim agreements usually contain an undertaking for the Crown to support a remission order. Under the terms of the ensuing remission order, tax on the supply of the land is relieved when acquired by the First Nation or its agent. If a trust is acting as agent for the First Nation (a question of fact), it will qualify to acquire the number of acres specified in the remission order relieved of tax. Alternatively, a refund is available if tax is paid on the lands qualifying for remission. An example of a remission order resulting from specific claims includes the Treaty Land Entitlement (Saskatchewan) Remission Order.

There are specific claims filed by Indian bands that are resolved by agreements that are silent on the issue of tax relief. It is possible that the amount calculated as compensation already factors in the GST/HST. Consequently, if the CCRA were to provide administrative tax relief in these situations, it would be inconsistent with the Crown's intentions as expressed in the negotiated specific claim agreements.

Application of TIB-039R to Indian Band Trusts Acquiring Land

Technical Information Bulletin B-039R (TIB-039R), entitled "GST Administrative Policy Application of GST to Indians," summarizes the tax treatment of purchases by Indians, Indian bands and band-empowered entities. It was developed to reflect the intent of the December 13, 1990, press release issued by the Minister of Finance, entitled "Guidelines Announced on Indian Purchases and the GST." The Finance announcement provided that "band-empowered schools, hospitals and social services entities on-reserve will purchase on the same tax-free basis as an Indian band." That announcement did not intend to extend tax relief to Indian band trusts acquiring land as a result of a specific claim agreement. It is clear that the issue of tax relief for land acquisitions is negotiated as part of the settlement process and the tax is relieved only if an undertaking is made in the specific claim agreement to support a remission order.

TIB-039R states that for property, (including real property) to be relieved of tax, the acquisition must be made on reserve either by acquiring the property on reserve or having it delivered to the reserve by the vendor or vendor's agent (obviously not possible for real property). Tax relief is also provided for certain services acquired off reserve by a band or band-empowered entity if they are for "band management activities or for real property on reserve." CCRA interprets the phrase "for band management activities or for real property on reserve" as a single inclusive term. Consequently, services acquired by Indians bands or band-empowered entities that are for real property off reserve do not qualify for tax relief.

In conclusion, for a trust (i.e., one that is not a registrant for GST/HST purposes) to be entitled to acquire land relieved of tax it would have to qualify as a band-empowered entity and the land being acquired must be reserve land. However, the definition of a band-empowered entity for purpose of TIB-039R includes a corporation, board, council, association, society or other organization. There was no intention to include a trust in that administrative definition as it would expand the term band-empowered entity beyond what was originally envisaged in the previously mentioned Finance announcement. As a result, the CCRA takes the position that a trust cannot qualify as a band-empowered entity. Consequently, unless there is a remission order, the acquisition of land by an Indian band trust will be subject to GST/HST.

If you would like to have clarification of any of the information provided above, please call Dave Caron, Manager of the Aboriginal Affairs Unit, at 954-7957, or myself at 957-1175.

Dwight Kostjuk
Rulings Officer
Aboriginal Affairs Unit
Public Service Bodies and Governments Division
Excise & GST/HST Rulings Directorate