20 March 2003 GST/HST Ruling 42269 - Eligibility as a Band-empowered Entity

Dear XXXXX:

Thank you for your letter XXXXX, concerning the eligibility of XXXXX to be considered a band-empowered entity for purposes of the application of Technical Information Bulletin (TIB) B-039R, GST Administrative Policy - Application of GST to Indians.

XXXXX, an auditor at XXXXX, has been working with you with respect to this issue. With XXXXX assistance you have provided additional information.

Based on the documents that you have provided, our understanding of XXXXX (referred to below as "the entity") is as follows.

The entity is incorporated under the XXXXX of the province of XXXXX, as a "membership" corporation.

The following are full voting members of the entity, and signatories to the XXXXX Agreement described in the next paragraph: XXXXX First Nation; XXXXX First Nation; XXXXX; XXXXX; and XXXXX. Other than the two First Nations, the full voting members are XXXXX[.] Following a decade of planning and negotiations, the XXXXX (hereafter referred to as the "Agreement") was concluded in XXXXX. The Agreement confirmed the parties' mutual commitment to the creation of a regional health care services delivery organization that:

•   delivers comprehensive health care services in the XXXXX, including acute care, long-term care, home care, community-based health services, ambulance services, public health services, mental health services, alcohol and drug abuse services, and other related health care services;

•   is governed through a structure accountable to the residents of XXXXX;

•   does not derogate from or add to the existing rights and obligations of any of the parties respecting the provision of health care services;

•   is without prejudice to the existing Treaty and aboriginal rights, principles, and goals of the participating First Nations; and

•   has XXXXX and Canada contribute for XXXXX.

As a result of the Agreement, the entity carries on any and all activities necessary or incidental to its purposes of governing and managing the delivery of comprehensive health care services to all residents of XXXXX.

Membership interests in the entity may from time to time be issued by resolution of the Board of Directors in such number and on such terms and conditions as may be permitted under the XXXXX. The number of members is unlimited. Currently, the members consist of two First Nations and three XXXXX.

The Board of Directors consists of a minimum of 5 and a maximum of 12 persons, as determined from time to time by the members.

Each member is entitled to appoint at least one director. Each member will appoint a second director where the member XXXXX or First Nation has a population in excess of 20% of the total population of XXXXX. Each member will appoint a third director where the member XXXXX or First Nation has a population in excess of 30% of the total population of XXXXX.

In order to determine the appropriate number of directors, the membership formula is reviewed six months prior to any selection of directors. The members may require verification of the population statistics from an independent source. If, as a result of the addition of members, the number of directors increases above the number of 12, the members will review this formula and revise it in order to limit the number of directors to 12.

All directors must meet the qualifications set out in XXXXX. There is no requirement for a director to be a member of the member First Nations, although we can assume that each of the two First Nation members will appoint as a director a member of the respective First Nation. The qualifications are general in nature, such as:

•   have been resident of XXXXX for a minimum of a year;

•   have a minimum age of 18 years;

•   be fluent in English or XXXXX; and

•   not be the legal counsel of the entity.

Under the entity's bylaw XXXXX, the members must approve the annual operating budget unanimously.

Under XXXXX, the entity in the event of dissolution or winding up must dispose of assets as follows.

•   The facility and the lease for the facility's land shall be transferred to whatever health care delivery organization offers memberships to the XXXXX First Nation.

•   Where all members join the same health care delivery organization, personal property will be transferred to that organization.

•   Otherwise, each member's interest in the assets shall be determined, and disposition will require the approval of the funding agencies.

The entity's registered office is located on XXXXX Indian Reserve XXXXX (XXXXX First Nation), XXXXX kilometres southeast of XXXXX. The XXXXX facility is located on the same reserve.

In your letter XXXXX you provided the following.

XXXXX

Following completion of the XXXXX facility in XXXXX, almost all fixed assets (the XXXXX facility, two XXXXX, and two XXXXX) are situated on reserve.

XXXXX

The on-reserve facilities serve, and will continue to serve, 90% of the regional population after any dissolution of the entity. These on-reserve facilities, upon any dissolution of the entity, will remain under the control of the First Nations on their reserves.

More than 90% of the movable assets located at XXXXX (personal tangible property owned by the entity) are situated on reserve. Following any dissolution of the entity, these assets will continue to be situated on reserve.

All moveable assets in XXXXX, in the event of dissolution of the entity, will be owned or controlled by the two First Nations.

Moveable assets located in XXXXX, upon any dissolution of the entity, will continue to be located in the on-reserve XXXXX. In the event of the health entity's dissolution, XXXXX First Nation will continue to maintain a management role in a replacement health care organization.

You estimate that members of the two First Nations represent more than 90% of the population of the XXXXX region. There is no evidence that there will be any significant change in the current proportion of First Nation and non-First Nation residents in the XXXXX region, or in the distribution of residents on and off reserve.

New members XXXXX can only be admitted by the unanimous agreement of the current members. The First Nations therefore would have to consent to the addition of new members XXXXX.

All decisions made by the membership at semi-annual meetings and at meetings of the Board of Directors require the consent of the two First Nations. XXXXX XXXXX XXXXX[.] To the same end, motions and resolutions require the support of the majority of the directors from the two First Nations XXXXX XXXXX[.]

Currently, the two First Nations appoint six of the nine directors. Under the current provisions of XXXXX, and the current and projected population characteristics, there is every assurance that the First Nations will continue to appoint a majority of the members.

Given that the XXXXX, serving more than 90% of the regional population, are situated on reserve, and that all current population projections forecast that the majority of regional residents will continue to be located on reserve, there is every assurance that the entity or any successor organizations would continue to operate substantially on reserve.

Ruling Requested

You would like to know if the entity is a BEE for purposes of Technical Interpretation Bulletin (TIB) B-039R, entitled GST Administrative Policy - Application of GST to Indians.

Ruling Given

Based on the information provided, we conclude that the entity is a band-empowered entity for the purposes of Technical Information Bulletin B-039R. This determination is based on the facts that you have provided that are present throughout this letter, and is binding for the period in which these facts endure.

Explanation

Based on TIB B-039R, an entity is considered to be owned by a band, a tribal council or a group of bands other than a tribal council if:

•   the band, tribal council or group of bands owns all or substantially all (90 per cent) of the shares or holds all or substantially all of the memberships of the entity; or

•   the band, tribal council or group of bands holds title to the assets of the entity or controls its disposition, such that in the event of wind up or liquidation, these assets are vested in the band.

An entity is considered to be controlled by the band, tribal council or group of bands if:

•   the band, tribal council, group of bands or individual members of the band, tribal council or group of bands, appoint or elect a majority of the members of the governing body of the entity (e.g., directors); and

•   the entity is required by legislation, by-laws, or an operating agreement, to submit to the band, tribal council or group of bands, its operating budget and where applicable, its capital budget for review and approval.

The policy for the application of the GST/HST to BEEs stems from relief provided under the Indian Act and the December 13, 1990, Press Release of the Minister of Finance concerning Indian purchases and the GST. Under section 87 of the Indian Act, tax relief is provided to the interest of an Indian or a band in reserve lands or surrendered lands; and the personal property of an Indian or a band situated on a reserve. As the XXXXX First Nation and the XXXXX First Nation are bands for purposes of the Indian Act, we will refer in our analysis to the member First Nations as "bands." To be considered a BEE, the entity must meet either of the requirements for ownership or control noted above.

Under the terms of XXXXX, it is not evident that the membership can be substantially composed of the bands. Only 2 of the 5 members are bands. The 3 others XXXXX. (Still, the number of members is unlimited under XXXXX, and membership interests may from time to time be issued by resolution of the Board of Directors. However, at this time, it is not an evident fact.)

TIB B-039R provides that an entity is owned by a band where a band holds title to the assets, or controls the disposition such that, in the event of dissolution or winding up, the assets are vested in the band. By virtue of the entity's conditions for disposition, the criterion for ownership is not met because there is no evidence that all of the assets will be vested in the bands.

Although the entity does not meet the first requirement of ownership, the requirement of control is met. The first criterion is demonstrated by the fact that the two First Nations appoint six of the nine directors. This fact establishes that the bands elect or appoint the majority of the governing body.

The second criterion for control under TIB B-039R requires that the operating budget and if applicable the capital budget be submitted for review and approval by the band, tribal council or group of bands. In this case, the members of the entity who are the Directors must approve the budget.

According to XXXXX, unanimous approval by the members is required for the annual operating budget. Consequently, without the approval of the two First Nations, the entity's annual operating budget cannot be approved. The nature of the XXXXX region is such that the two bands have a very particular relationship with the XXXXX. Because each of the two bands can give or withhold approval, the second criterion is met.

This ruling is subject to the general limitations and qualifications outlined in section 1.4 of Chapter 1 of the GST/HST Memoranda Series. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal; that there are no relevant changes in the future to the Excise Tax Act, or to our interpretative policy; and that you have fully described all necessary facts and transaction(s) for which you requested a ruling.

Should you have any further questions or require clarification, please call Dave Caron, Manager of the Aboriginal Affairs Unit, at (613) 954-7957, or myself at (613) 957-1175.

Yours truly,

Dwight Kostjuk,
Aboriginal Affairs Unit
PSBs & Govts Division
Excise and GST/HST Rulings Directorate