Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
1. Is the XXXXXXXXXX exempt from tax by virtue of paragraph 149(1)(c) of the Act.
2. Are certain status Indian employees of the limited partnerships exempt from income tax by virtue of paragraph 81(1)(a) of the Act?
Position:
Yes.
Yes.
Reasons:
1. The Band has passed by-laws under section 81 & 83 of the Indian Act and is performing several functions of government.
2. The limited partnerships are resident on reserve for purposes of the Employment Income Guidelines. Provided the other requirements of guideline 2 & 3 are met, the status Indians will be exempt from income tax.
XXXXXXXXXX 1999-000654
XXXXXXXXXX, 2000
Dear Sirs:
Re: Advance Income Tax Ruling Request
XXXXXXXXXX
This is in reply to your letters of XXXXXXXXXX requesting an advance income tax ruling on behalf of the above-named taxpayer.
We understand that, to the best of your knowledge, none of the issues raised in this ruling is being considered by a Taxation Services Office or Taxation Centre in connection with an income tax return already filed, is the subject of any notice of objection or is under appeal.
The following documents were submitted in conjunction with the ruling request:
a) a copy of the Memorandum of Understanding, between the Department of Municipal and Community Affairs and XXXXXXXXXX ("The Band").
b) a copy of a letter received by The Band dated XXXXXXXXXX from the Department of Community and Northern Affairs concerning the Water and Sewage Service Subsidy Program ("WSSSP").
c) a copy of the signed Ministerial Order dated XXXXXXXXXX which constitutes the official approval of The Band's business licensing bylaw pursuant to section 83 of the Indian Act, and
d) a partial copy of The Band's zoning bylaw pursuant to section 81 of the Indian Act.
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
Facts:
1. The Band is an Indian Band as defined under Section 2 of the Indian Act.
2. The Band obtained its reserve, known as XXXXXXXXXX.
3. The Band has a democratically elected Chief and four Council members, who govern The Band.
4. The Band has passed the following bylaws under sections 81, 83 and 85.1 of the Indian Act, respectively: (a) bylaw concerning traffic (XXXXXXXXXX) and bylaw concerning zoning (XXXXXXXXXX); (b) bylaw concerning the licensing of businesses (XXXXXXXXXX); and c) bylaw concerning intoxicants (XXXXXXXXXX).
5. The Band provides and administers the following public works, social services and infrastructure programs XXXXXXXXXX, including:
a) land claims
b) economic development
c) lands management
d) forestry services
e) fire protection services
f) medical transport
g) family support services
h) youth services
i) community health
j) alcohol & drug program
k) bus service
l) social and education counseling
m) library
n) road and public work maintenance
o) custodial services (garbage, water, janitor)
p) senior care
q) child care
6. Facilities maintained by The Band include:
a) Band office
b) Community hall
c) Library
d) Health station
e) Family resource building
f) Alcohol & drug centre
g) Band-owned store on reserve
h) Forestry base on reserve
i) Band-owned seminar centre building
j) industrial and commercial sub-division
k) helicopter base
7. The Band has received funding from Indian & Northern Affairs to enable it to conduct research into the historical background to XXXXXXXXXX potential specific claims. XXXXXXXXXX.
8. The Band is subject to an Order-in-Council under Section 69 of the Indian Act, giving it permission to control, manage or expend its revenue moneys.
Proposed Transactions
9. A limited partnership (the "XXXXXXXXXX", or "LP2") will be formed to provide XXXXXXXXXX.
10. The Band and XXXXXXXXXX as the Aboriginal partners in the arrangement, will bring industry experience, a central reserve-based location for operations, and access to a significant market in their traditional land. XXXXXXXXXX as the industry partner, will bring a depth of experience in XXXXXXXXXX is a public company which provides XXXXXXXXXX services to the oil and gas industry. Together, through the vehicle of LP2, the parties intend to build a diversified oil and gas service business XXXXXXXXXX. It is anticipated that over time, the XXXXXXXXXX initiative will be expanded into other areas of the oil and gas service industry. The partnership will train and employ XXXXXXXXXX Aboriginal personnel in all phases of its operations, including on site field work, support services, and senior management.
11. The Aboriginal interests, initially The Band and XXXXXXXXXX, will be grouped in a limited partnership, XXXXXXXXXX ("LP1"). The general partner of LP1 will be XXXXXXXXXX. ("GP1"), a corporation formed under the laws of the XXXXXXXXXX. The shareholders of GP1 will be XXXXXXXXXX, a corporation formed under the laws of the XXXXXXXXXX is controlled by XXXXXXXXXX, a Status Indian and a member of The Band, and will own XXXXXXXXXX common shares of GP1. XXXXXXXXXX, a wholly-owned subsidiary of The Band incorporated under the laws of the XXXXXXXXXX will also own XXXXXXXXXX shares of GP1.
XXXXXXXXXX
12. The limited partners of LP1 will be The Band and XXXXXXXXXX. Each limited partner will hold XXXXXXXXXX limited partnership units in LP1. It is anticipated that XXXXXXXXXX other First Nations located in the XXXXXXXXXX. will become limited partners of LP1 and will each acquire a XXXXXXXXXX% interest in the partnership. The limited partners of LP1 will share in the profits and losses of LP1 in the same percentages. GP1 will own a XXXXXXXXXX unit interest in LP1.
13. The head office of LP1 will be situated on The Band's reserve. As noted above, The Band's reserve is a "reserve" as defined in the Indian Act. All Board of Directors' meetings of the general partner, GP1, will be held on The Band's reserve. All major decisions relating to the management and operations of LP1 will be taken by the Directors of GP1 during board meetings.
14. All the employees of LP1 will be paid from its office located on The Band's reserve. All books and records of LP1 will be maintained on the reserve.
15. It is anticipated that LP1 may enter into business activities on its own account, either in relation to the operations of LP2 or otherwise. The operations of LP1 will be performed substantially off reserve. Its employees, some of whom will be status Indians residing either on or off reserve, will perform their duties both on and off-reserve. It is anticipated that some of LP1's employees may perform more than 50% of their employment duties on reserve.
16. The general partner of LP2 will be XXXXXXXXXX ("GP2"), a corporation formed under the laws of XXXXXXXXXX. The shareholders of GP2 will be XXXXXXXXXX.
17. The limited partners of LP2 will be LP1 as to XXXXXXXXXX % and XXXXXXXXXX as to XXXXXXXXXX%. The limited partners of LP2 will share in the profits and losses of LP2 in the same percentages. GP2 will own a XXXXXXXXXX unit interest in LP2.
18. XXXXXXXXXX.
19. LP1 will provide guidance and support to the marketing efforts of LP2 in Aboriginal and XXXXXXXXXX communities, using its networks and influence in the area of operations.
20. The head office of LP2 will be situated on The Band's reserve. All Board of Directors' meetings of the general partner, GP2, will be held on The Band's reserve. The Board of Directors of GP2 will be comprised of XXXXXXXXXX directors, XXXXXXXXXX appointed by XXXXXXXXXX and XXXXXXXXXX by XXXXXXXXXX. All major decisions relating to the management and operations of LP2 will be taken by the Directors of GP2 during board meetings.
21. All the employees of LP2 will be paid from its office located on The Band's reserve. All books and records of LP2 will be maintained on reserve.
22. The actual operations of LP2 will be performed substantially off reserve. Most of its employees, some of whom will be status Indians residing either on or off reserve, will perform their duties substantially off reserve. It is anticipated that some of LP2's employees may perform more than 50% of their employment duties on reserve.
Purpose of the Proposed Transaction
23. The purpose of the proposed transactions is to provide a vehicle for several First Nations and a corporation owned by a status Indian member of The Band to enter into partnerships with other third parties. The formation of LP1 facilitates this objective and provides a single entity for corporations to deal with. LP2 is the operational vehicle through which the specific well service business activities are conducted. The parties seek limited liability protection such that their respective assets, which are not involved in the activities of LP2, will not be exposed to commercial liability.
Rulings Requested and Given
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions, and purpose of the proposed transactions and provided further that the proposed transactions are carried out as described above, and that there are no other transactions which may be relevant to the ruling requested, we confirm that:
A. In any year in which The Band continues to provide community services of the type and magnitude referred to in paragraph 4 above and providing The Band does not rescind the section 81 and 83 bylaws referred to in paragraph 4 above, The Band will be considered to be a public body performing a function of government in Canada within the meaning of paragraph 149(1)(c) of the Income Tax Act (the "Act") and, accordingly, no tax will be payable under Part I by The Band on any LP1 income included in the Band's income by virtue of paragraph 12(1)(l).
B. We confirm that the status Indian employees of LP1 or LP2, who reside on-reserve will be exempt from income tax on all of their employment income from LP1 or LP2, pursuant to paragraph 81(1)(a) of the Act and section 87 of the Indian Act.
C. We confirm that the status Indian employees of LP1 or LP2, who reside off-reserve and perform more than 50% of their employment duties for LP1 or LP2 on The Band's reserve, will be exempt from income tax on all of their employment income from LP1 or LP2, pursuant to paragraph 81(1)(a) of the Act and section 87 of the Indian Act.
D. We confirm that the status Indian employees of LP1 or LP2, who neither reside on-reserve nor perform more than 50% of their employment duties for LP1 or LP2 on The Band's reserve, will be exempt from income tax on the portion of their employment income from LP1 or LP2 which relates to the employment duties performed on reserve, pursuant to paragraph 81(1)(a) of the Act and section 87 of the Indian Act.
These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 31, 1996 and are binding on the Department provided that the proposed transactions are completed by XXXXXXXXXX.
The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.
Under subsection 153(1) of the Act, every person making a payment of salary or wages or other remuneration is required to withhold taxes. In the case where recipients are status Indians whose employment income may be exempt from income tax, including partially exempt, if the payor wishes to be relieved from the obligation to withhold taxes, we suggest that the payor request individual waivers under the provisions of subsection 153(1.1) of the Act. Queries with respect to this matter should be referred to the Assistant Director, Client Services Division, of the XXXXXXXXXX tax services office.
Yours truly,
XXXXXXXXXX
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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