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:
Is the XXXXXXXXXX exempt from tax by virtue of paragraph 149(1)(c) of the Act.
Position:
Yes.
Reasons:
The XXXXXXXXXX is currently negotiating (through the XXXXXXXXXX) with Canada a comprehensive lands settlement agreement.
XXXXXXXXXX
XXXXXXXXXX 1999-000668
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 2000
Dear Sirs:
Re: Advance Income Tax Ruling Request
XXXXXXXXXX
This is in reply to your letter 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 a draft of the Framework Agreement between the XXXXXXXXXX and Her Majesty the Queen in Right of Canada;
b) a copy of a letter received by the XXXXXXXXXX written by Robin Aitken of Indian and Nothern Affairs Canada;
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
Facts:
1. XXXXXXXXXX ("The Band") is an Indian Band as defined under Section 2 of the Indian Act.
2. The Band is a signatory to XXXXXXXXXX. Although the Treaty provides that a reserve be laid aside, no such reserve has ever been established.
3. The Band has democratically elected a Chief and XXXXXXXXXX Council members, who govern the Band.
4. The Band currently administers the following programs which are funded through various federal and Northwest Territories funding programs:
i Drug and alcohol counselling
ii Home care program for elders
iii Income support and social assistance
iv Day care and pre-school program
v Brighter Futures program - workshops re community wellness
vi Pathways program - re local training
vii Community economic development
5. The Band employs the following individuals to carry on its programs:
Chief XXXXXXXXXX
Band manager XXXXXXXXXX
Receptionist XXXXXXXXXX
Alcohol and drug counseller XXXXXXXXXX
Home care supervisor XXXXXXXXXX
Home care worker XXXXXXXXXX
Day care co-ordinator XXXXXXXXXX
Pre-school teacher XXXXXXXXXX
Pre-school teacher XXXXXXXXXX
6. The Band owns and operates the XXXXXXXXXX. This is a tax exempt not-for-profit association.
7. XXXXXXXXXX.
These corporations have been the focus of the Band's economic development initiatives.
8. The Band is a member of the XXXXXXXXXX. Members of this community include:
Member Communitv Location
XXXXXXXXXX
9.
XXXXXXXXXX
10. Canada and XXXXXXXXXX have agreed to enter into formal discussions to negotiate a comprehensive land claims agreement. The first stage will see negotiations of interim measures, framework and funding agreements. The second stage will encompass negotiations on a land, resources and self-government agreement. First stage of discussions began in XXXXXXXXXX.
11. Although The Band is a member of the XXXXXXXXXX, it has asserted its right to negotiate a unique and distinct land claims settlement with Canada. The Band has made this assertion on the basis that it has special needs which are not being addressed under the Regional Claim. These include the transboundary nature of its claim (XXXXXXXXXX) and the XXXXXXXXXX in its traditional territory. When the negotiation issues are resolved, The Band intends to be a full party in these negotiations, not subordinate to any senior negotiating body.
Proposed Transactions
12. A limited partnership (referred to as "XXXXXXXXXX", or "LP2") will be formed to
XXXXXXXXXX
13. The Aboriginal interests will be grouped in a limited partnership, XXXXXXXXXX ("LP1"). The general partner of LPl will be XXXXXXXXXX ("GPl"), a corporation formed under the laws of XXXXXXXXXX. The shareholders of GPl will be XXXXXXXXXX, a corporation formed under the laws of XXXXXXXXXX is controlled by XXXXXXXXXX, a Status Indian and a member of the XXXXXXXXXX, and will own XXXXXXXXXX common shares of GP1. XXXXXXXXXX, a wholly-owned subsidiary of XXXXXXXXXX incorporated under the laws of XXXXXXXXXX, will also own XXXXXXXXXX shares of GPl. It is anticipated that XXXXXXXXXX other First Nations located in XXXXXXXXXX will become shareholders of GPl and will each be issued XXXXXXXXXX common shares of GPl. The Band will become one of the new shareholders.
14. The limited partners of LP1 will be XXXXXXXXXX. Each limited partner will hold XXXXXXXXXX limited partnership units in LP1. It is anticipated that XXXXXXXXXX other First Nations located in XXXXXXXXXX will become limited partners of LP1 and will each acquire a XXXXXXXXXX % interest in the partnership. The Band will become one of the limited partners in LP1.
15. The head office of LPl will be situated on the XXXXXXXXXX reserve.
16. 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 actual operations of LPl 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.
17. The general partner of LP2 will be XXXXXXXXXX ("GP2"), a corporation formed under the laws of XXXXXXXXXX. The shareholders of GP2 will be XXXXXXXXXX as to XXXXXXXXXX% and XXXXXXXXXX as to XXXXXXXXXX%.
18. 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% interest in LP2.
19. LP2 will, by virtue of its XXXXXXXXXX% Aboriginal/Northern ownership, enhance the opportunities for LP2 to be awarded contracts in its area of operations. Such ownership may, as well, result in access to government training funding for employees of LP2.
20. LP2 will provide guidance and support to the marketing efforts of LPl in Aboriginal and Northern communities, using its networks and influence in the area of operations.
21. The head office of LP2 will be situated on the XXXXXXXXXX reserve.
22. All the employees of LP2 will be paid from its office located on the XXXXXXXXXX reserve. All books and records of LP2 will be maintained on the XXXXXXXXXX reserve.
23. The actual operations of LP2 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 substantially off the XXXXXXXXXX reserve.
Purpose of the Proposed Transaction
24. The purpose of the proposed transactions is XXXXXXXXXX to which The Band will expect a reasonable return on their investment. The Band would like assurances that it is a "public body performing a function of government in Canada" and, consequently, is exempt from income tax on allocation of its share of LP1's income or on receipt of dividends which it may receive from GP1 pursuant to paragraph 149(1)(c) of the Income Tax Act (the "Act").
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 transaction is carried out as described above, and that there are no other transactions which may be relevant to the ruling requested, we confirm that:
In any year in which The Band continues to provide community services of the type in paragraph 4 above and is involved in the negotiation or implementation of its settlement, 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 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) of the Act.
This ruling is 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.
The above rulings are also based on the draft Framework Agreement between the XXXXXXXXXX and Her Majesty the Queen in right of Canada.
It should be noted that substantial delays in the settlement negotiations could invalidate the rulings as The Band must be performing a function of government in Canada to be exempt from tax under paragraph 149(1)(c) of the Act.
At the present time, there is no proposed payment of dividends by GP1 so it is not possible to provide a binding advance income tax ruling with respect to such dividends. However, we would be pleased to consider this issue on a rulings basis at the time that the payment of dividends becomes proposed.
Yours truly,
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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