18 February 2002 GST/HST Interpretation 6939 - Application of GST/HST to a Real Property Development Carried Out by a Trust That is Created by a Status Indian

Dear XXXXX:

This refers to your previous letter, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to a trust scenario concerning status Indians. As the scenario is a generalized one, we provide an interpretation rather than a ruling. We apologize for the delay in providing you with our response.

Our understanding of the scenario is as follows. An individual, registered under the Indian Act and therefore a status Indian, holds a Certificate of Possession to real property located on an Indian reserve. The Indian will develop the property into residential housing.

The Indian assigns his rights to the real property to a trust for reasons having to do with the requirements of the supply of real property on reserve.

The beneficiaries of the trust are the Indian and members of the Indian's family, all of whom are status Indians.

The trustee is a corporation, all of the shareholders of which are status Indians.

Interpretation Requested

You ask two questions, as follows:

1. What is the GST status of supplies made to a trust that are for use by the trust in developing the residential property on a reserve (such as construction materials)?

2. Where the land is then leased (for residential purposes) on a long-term basis, is the trust required to self-assess for GST under section 191 of the ETA (or will TIB B-039R relief apply)?

Interpretation Given

The administrative policy of Canada Customs and Revenue Agency (CCRA) concerning the application of GST/HST to the section 87 Indian Act relief (referred to below as s. 87 relief) is explained in the Technical Information Bulletin (TIB) B-039R, GST Administrative Policy - Application of GST to Indians.

The response to your questions can be divided into two parts, the first addressing trust scenarios which are bare trusts, and the second concerning trusts scenarios which are not bare trusts.

Bare Trust scenarios

The trustee of a bare trust is a "shell" or nominee corporation normally with no authority to deal with the property except to convey legal title as directed by the beneficial owner or owners. The beneficial owner retains all the real power to manage and administer the trust property. As a result, CCRA considers the beneficiary to be carrying on the activity.

Where a bare trust is present, the answers to your two specific questions are as follows.

1. Where a bare trust agreement exists, the beneficiary is considered to be the person engaged in the endeavor. As such, the s. 87 relief will apply where all the conditions described in TIB B-039R are present. Otherwise the taxable supplies are subject to tax at the applicable rate (GST or HST).

2. Where a bare trust agreement exists, the beneficiary is considered to be the person engaged in the endeavor. As such, the s. 87 relief will apply to self-assessments caused by supplies deemed to be made under Part IX of the Excise Tax Act (ETA), such as those imposed by section 191, where all the conditions described in TIB B-039R are satisfied. Consequently, there would be no requirement to self-assess and remit the tax normally required.

Trust scenarios that are not Bare Trusts

The Indian Act confers tax relief upon Indian bands and Indian individuals only. Case law has confirmed that a corporation is not considered to be an Indian individual even if it is owned and controlled by an Indian individual. Therefore a corporation is not eligible for s. 87 relief. We have taken the same position with respect to trusts. A trust is not an Indian individual even if all the individuals connected to the trust are Indians.

Under TIB B-039R, tax relief extends to partnerships where a partner is an Indian and the supply is made on a reserve. However, a trust and a partnership are significantly different in nature. They each are governed by specialized rules for taxation purposes. A corporation or trust involving an Indian may be established for a number of different reasons. Where business activities are carried out separately from the Indian, the evolving jurisprudence supports that these activities are not provided exemption from taxation as if they were carried out by the Indian. However, in regard to trusts, as the ETA treats them as a separate person, any deemed taxable supplies resulting from the disposition of property to an Indian beneficiary or other taxable supplies made by the trustee to an Indian, band or band-empowered entity will be relieved of tax provided the requirements under TIB B-039R are met. As a result we feel that our position is in keeping with the intent as to the scope of tax relief. Consequently, there is no intention to extend to trusts the tax relief available for partnerships having an Indian partner.

In TIB B-039R, the s. 87 relief for Indian bands is also extended to include tribal councils, a group of bands other than a tribal council, and band-empowered entities. Inherent to the meaning of the term "band-empowered entity" is the idea that a band, tribal council or a group of bands established the entity. Individuals who establish entities such as trusts or corporations cannot come under the definition of a band-empowered entity.

As well, CCRA takes the following position concerning Indian trusts. At common law, a trust is a legal relationship as opposed to a legal entity. A trust has neither members nor shareholders. A trust exists when legal ownership of property is vested in the trustee and the beneficial ownership is vested in the beneficiaries. There is a fiduciary relationship between the trustees and the beneficiaries with respect to the property held within the trust. The trustee's primary obligation is to carry out the instructions of the settlor by exercising powers and obligations of the trust for the benefit of the objects (beneficiaries) of the trust. The beneficiaries generally have no rights or powers against or over the trustees except to insist that the terms of the trust be performed in accordance with the provisions of the trust instrument. Accordingly, it is our position that a trust cannot meet the "owned or controlled" criteria of the band-empowered entity definition.

Therefore, where there is a trust that is not a bare trust, our answers to your two specific questions above are as follows:

1. Supplies made to a trust, such as construction materials, are taxable. TIB B-039R relief cannot apply to a trust.

XXXXX

2. The trust is required to self-assess where Part IX of the ETA deems a taxable supply to have been made, such as under section 191. TIB B-039R relief does not apply.

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, they do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact the Manager of the Aboriginal Affairs Unit, Dave Caron at (613) 954-7957, or myself at (613) 957-1175.

Yours truly,

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