21 February 2001 Internal T.I. 2000-0006597 - scholarships rec. by indians

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: The effect of the Federal Court of Appeal's decision in the Everett Kakfwi case (99 DTC 5639) on the income tax treatment of scholarships received by status Indians. Our position before Kakfwi is that an agreement referred to in paragraph 90(1)(b) of the Indian Act must flow from a treaty.

Position: No change.

Reasons: In Kakfwi, the Federal Court of Appeal referred with favour to the Supreme Court's interpretation of the terms "treaty" and "agreement" in Mitchell v. Peguis Indian Band ((1990) 2 SCR 85). That is, these terms take colour from one another and that the use of the term "given" can be taken as a distinct and pointed reference to the process of cession of Indian lands.

		February 21, 2001

	Vancouver Tax Services Office	HEADQUARTERS
	Client Assistance Division	J. Gibbons
(613) 957-2135
	Attention: Graham Shand
		2000-000659

Scholarships for Indians

We are replying to your various emails in January and February, 2000, concerning the effect of the Federal Court of Appeal's decision in the Everett Kakfwi case (99 DTC 5639) on the income tax treatment of scholarships received by status Indians. You should note that the Supreme Court of Canada has dismissed the taxpayer's leave application. Consequently, the decision of the Federal Court of Appeal is final and binding.

Our Comments

Section 87 of the Indian Act provides that the personal property of an Indian situated on a reserve is exempt from taxation. Paragraph 90(1)(b) of the Indian Act provides that, for purposes of section 87 of that Act, personal property that was given to Indians under a treaty or agreement between a band and Her Majesty shall be deemed always to be situated on a reserve.

As indicated in our email to you on January 20, 2000, we follow the Federal Court - Trial Division's decision in Greyeyes (78 DTC 6043) when dealing with section 90 of the Indian Act in relation to scholarships received by Indians. Deanna Greyeyes was a status Indian enrolled as a student at the University of Calgary, who, while attending the University of Calgary, received the sum of $2,339.50 from the Department of Indian Affairs and Northern Development to assist her in her post-secondary education. At all relevant times, she was neither living on nor attending classes on a reserve. However, the scholarship was received by Deanna Greyeyes pursuant to an agreement and treaty between her Band and Her Majesty specifically pursuant to an agreement to assist band members in their education in compliance with the obligations of the Federal Government under Treaty No. 6. The court held that the scholarship, by virtue of subsection 90(1) of the Indian Act, was the personal property of an Indian situated on a reserve within the meaning of section 87 of the Indian Act.

In your view, an agreement between a band and the Government is sufficient to render a scholarship exempt. As indicated in our email to you on February 18, 2000, our position has consistently been that agreements referred to in paragraph 90(1)(b) of the Indian Act must flow from a treaty, i.e., the agreement must implement the treaty. Our position stems from the decision on June 21, 1990, in Mitchell v. Peguis Indian Band ((1990) 2 SCR 85), wherein the majority in the Supreme Court of Canada held that the terms "treaty" and "agreement" in paragraph 90(1)(b) of the Indian Act take colour from one another and that the use of the term "given" can be taken as a distinct and pointed reference to the process of cession of Indian lands.

In Kakfwi, the Federal Court of Appeal referred with favour to the Supreme Court's interpretation of the terms "treaty" and "agreement" in Mitchell v. Peguis Indian Band. In this regard, the Federal Court of Appeal stated the following (at 5642): "Thus, LaForest, J.'s analysis (in Mitchell) makes clear that an application of the basic rules of legislative interpretation which require that the terms 'treaty' and 'agreement' in paragraph 90(1)(b) be linked together so as to limit the extent of the word 'agreement' to that of 'ancillary agreement'-- that is to say an agreement in the nature of a treaty or attached to a treaty -- is wholly supported by the history of the protective tax regime adopted by Parliament in furtherance of the duties of the Crown toward Indians."

In conclusion, it is our view that the Kakfwi decision further supports our current position. Thus, it remains our view that an agreement referred to in paragraph 90(1)(b) of the Indian Act must flow from a treaty. If you have a specific case on hand, including a copy of the agreement and other supporting documentation, we would be pleased to provide you with assistance in determining whether the particular scholarship is taxable.

Milled Azzi, CA
Manager
Business Incentives Section
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

cc Lorette Shaw

Client Services, Regina T.S.O.

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