22 March 2002 GST/HST Interpretation 35196 - Treatment of Indian Purchases for GST Purposes

Dear XXXXX:

This is in response to your letter of XXXXX, with attachments, to XXXXX in which you question the position taken by the Canada Customs and Revenue Agency (CCRA) in one of its XXXXX, interpretation letters. This letter states, in part, "Where the band pays an amount of money paid to a band member to transport himself to an appointment, that amount does not qualify as an allowance eligible for rebate of tax. Where the band pays an amount of money to a third party to transport a band member to an appointment, we would consider that the third party has provided a transportation service to the band ... if the supplier of the transportation service is a registrant and is required to charge tax, the band may be eligible to acquire the transportation service relieved of tax or be eligible for a rebate of tax."

At your request, on XXXXX, XXXXX forwarded your enquiry of XXXXX, to Technical Interpretation Services XXXXX who, in turn, sent it to this office for reply.

This response also acknowledges your subsequent letters and the information contained therein of XXXXX, regarding the subject matter. Further, it acknowledges our telephone conversations on this matter, the most recent of which took place on March 6, 2002. During that discussion, you asked that the response address whether the XXXXX could claim the 50% rebate available to non-profit organizations (NPO) should it be determined that the payments it makes to reimburse it members for medical transportation off reserve does not qualify for tax relief as a band management activity. You indicated that the XXXXX is a qualifying NPO.

I understand that Health Canada operates a program to provide Non-Insured Health Benefits (NIHB) to First Nations and Inuit. Medical transportation is one of the benefits provided under the NIHB Program to registered Indians, recognized Inuit or Labrador Innu.

Through the submission of supporting documentation, Indian bands seek reimbursement from Health Canada for long distance medical transportation expenses of their band members. The payments made to Indian bands for transportation, meals and accommodation are based upon rates set out by Health Canada in its administrative guidelines.

You provided a sample of the forms used by an Indian band in seeking reimbursement from Health Canada for these expenses. One of these forms is the "Long Distance Medical Travel Band Reimbursement" form. It is used to itemize expenses claimed for hotel; private accommodation; meals; mileage; and bus/train. The form requires the identification of the band member, their status number and the trip destination. A band seeking reimbursement must provide Health Canada proof (e.g., photocopy of cheque) that it paid the band member for the medical travel expenses they incurred. The form is signed by a band representative and submitted to Health Canada under an Application Authorization Number. The other form is the "NIHB Transportation System (Zone) - Lookup Results" form. It is used to provide supporting information about the band member and the details of the medical appointment (e.g., the Application Status; Application ID; Client Information (Status; Name; Address); Eligibility; and Appointment Information, including date and time).

Individual members of the XXXXX pay for their own travel expenses to medical appointments off reserve. Sometimes, a band member may use his or her own vehicle as a means of transportation to a medical appointment. The XXXXX reimburses the band member for transportation costs incurred, including any GST paid by the band member. It then seeks reimbursement from Health Canada XXXXX for the payment it made to its band member. Once the claim is reviewed and approved, Health Canada pays the XXXXX the amount that it had reimbursed to its band member.XXXXX[.] In XXXXX, the XXXXX filed a rebate claim under reason code 8 to recover an amount equal to the GST portion reimbursed to its band member for medical transportation off reserve. Original invoices were submitted with the claim.

Interpretation Requested

An amount of money paid by the XXXXX to a band member to reimburse the member for transportation expenses to a medical appointment off reserve is a band management activity and therefore tax calculated as 7/107 of the reimbursement is eligible for a rebate.

In the case where the XXXXX is not entitled to a rebate of 7/107 of the amount it reimburses to its members for transportation expenses they incur to attend medical appointments off reserve, it is entitled to file for the 50% rebate available to NPOs.

Interpretation Given

An amount of money paid by the XXXXX to a band member to reimburse the band member for transportation to a medical appointment off reserve is not a band management activity and therefore tax calculated as 7/107 of the reimbursement is not eligible for a rebate.

The XXXXX is not entitled to file for the 50% rebate available to NPOs on the amount it reimburses to its members for transportation expenses they incur to attend medical appointments off reserve.

Explanation

In December 1990, the Minister of Finance announced policy guidelines concerning the treatment of Indian purchases for GST purposes. With respect to band-empowered entities, these guidelines provided that band-empowered schools, hospitals and social service entities on reserve could purchase on the same tax-free basis as an Indian band.

Technical Information Bulletin B-039R "GST Administrative Policy - Application of GST to Indians" (TIB-039R) reflects this policy guideline. Under TIB-039R, services acquired by an Indian band or band-empowered entity, either on or off reserve, for band management activities or for real property on reserve are not subject to the GST/HST. An exception is made for off-reserve purchases by Indian bands and band-empowered entities of transportation, short-term accommodation, meals and entertainment. However, GST/HST paid by a band or band-empowered entity in respect of these purchases may be recovered through the rebate mechanism if they are acquired for band management activities or for real property on reserve. In other words, an Indian band or band-empowered entity must have acquired the supply and paid tax on the supply for tax relief to apply.

Administratively, CCRA XXXXX has extended tax relief to Indian bands and band-empowered entities by providing a rebate of 7/107 or 15/115 on amounts paid as an allowance to persons acting on their behalf. A person acting in the capacity of a "band official" in the delivery of band management activities is considered to be acting on behalf of an Indian band or band-empowered entity. A "band official" is viewed as someone with authority to represent the Indian band or band-empowered entity in an official capacity. Persons acting on behalf of a band or band-empowered entity include, for example, employees, officers, chiefs, members of the band council and other band members who are representing the band or band-empowered entity in the delivery of band management activities. An Indian band or band-empowered entity is also entitled to a rebate of GST/HST included in amounts reimbursed to a band official for band management activities.

Accordingly, where an Indian band or band-empowered entity pays an allowance to a band official or reimburses a band official for off-reserve purchases of transportation, short-term accommodation, meals and entertainment acquired in conducting the band or band-empowered entity's management activities or for real property on reserve, the Indian band or band-empowered entity will qualify for a rebate of the GST/HST included in the allowance or reimbursement paid.

From the information provided, it is my understanding that it is the individual band member who incurs off reserve expenses, including GST, for medical transportation services. The band member then seeks reimbursement for these expenses from the XXXXX. The band member must support reimbursements by receipts. In your view, the fact that a band member transports him or herself to a medical appointment does not negate the fact that this is a band management decision. This may be the most economical means to get a band member to their medical appointment.

As you know, TIB-039R defines "band management activities" as "activities or programs undertaken by a band or band-empowered entity that are not commercial activities for which they would otherwise be entitled to an input tax credit ..." Band management activities are those activities conducted by bands and band-empowered entities with regard to their normal administration, programs and services that are designed and/or delivered for the benefit, well-being or assistance of band members. These activities are generally similar to those provided by other levels of government (e.g., child care; social assistance; welfare services; policing; housing). The following is an example of a government activity or program that would clearly fall within the definition of "band management activity" when carried out by a band or band-empowered entity.

A municipality, as one of its activities or programs, offers a specialized transportation service at a subsidized rate to its residents in the municipality who are unable to use regular transit due to a disability. The municipality recovers its cost of carrying out this activity or program from its own budget, some of which is derived from federal and provincial grants. The municipality sets out guidelines and eligibility criteria. Applications from those residents wishing to use this specialized transportation service are made to the transportation provider with whom the municipality has a contract for the provision of this transportation service.

Using the scenario described, if the XXXXX carried out an activity or program of transporting its band members to medical appointments off reserve and it contracted with a third party for the provision of this transportation service, this activity or program would qualify as a band management activity. The XXXXX would be eligible for a rebate of tax it paid on its purchase of transportation services from the service provider.

However, the XXXXX does not carry out an activity or program of transporting its band members to medical appointments off reserve. Rather, this activity or program is that of Health Canada.

While the XXXXX does not carry out an activity or program of transporting its band members to medical appointments off reserve, its role of administering or managing the reimbursement of long distance medical transportation expenses, by Health Canada, to its band members qualifies as a band management activity. Therefore, although the XXXXX is not entitled to recover, through the rebate mechanism, GST imbedded in the reimbursements it pays to its band members for this purpose, it is entitled to relief for GST it pays on its purchases to the extent that they are acquired in its administrative capacity. For example, if the XXXXX decided to issue a newsletter to its members describing the Health Canada program and the criteria for reimbursement of their members' medical transportation expenses, the acquisition of the service of publishing the newsletter by the XXXXX from a GST registrant off reserve would be relieved of GST/HST as a band management activity.

Pursuant to section 259 of the Excise Tax Act, a non-profit organization that receives at least 40% of its annual revenues in the form of "government funding" is regarded as a qualifying non-profit organization and is entitled to a 50% rebate of GST/HST for "non-creditable tax charged." The amount of GST imbedded in a reimbursement paid to a band member who is not representing the XXXXX in an official capacity is not an amount of GST paid by the XXXXX. As such, the XXXXX is not entitled to claim the 50% GST rebate available to NPOs.

During our telephone conversation, you indicated that there had been some inconsistencies across Canada with respect to the payment of rebates by CCRA in the situation described. While amounts may have inadvertently been paid by CCRA in certain circumstances where a rebate was not eligible, CCRA's position concerning the payment of allowances and reimbursements by band and band-empowered entities has not changed nor has its position with respect to what constitutes "band management activities", as defined in TIB-039R. CCRA offices across Canada are aware of this position.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

XXXXX will be advised of this position, by way of copy of this letter. Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 954-7952.

Yours truly,

Lynn Fournier Renner
Aboriginal Affairs Unit
Excise and GST/HST Rulings Directorate