8 January 2002 Internal T.I. 2001-0114767 - INDIAN BANDS AS MUN. AUTHORITIES

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Summary of CCRA's position regarding whether an Indian band may be considered a municipality in Canada for purposes of section 149 of the Act.149(1)(c)

Position:

Reasons:

							January 8, 2002

	Headquarters				Aboriginal Affairs Section
	Policy and Intergovernmental		Karen Power, CA
	   Affairs Directorate			(613) 957-8953

	Attention:  Neil Mitchell
							2001-011476

Indian Bands and Public Bodies Performing a Function of Government

This is in reply to your recent email of December 10, 2001, wherein you asked us to identify the various factors that the Canada Customs and Revenue Agency ("CCRA") will consider in determining whether an Indian band may be considered a municipal authority in Canada for purposes of paragraph 149(1)(c) of the Income Tax Act (the "Act").

An Indian band may qualify for exemption under paragraph 149(1)(c) of the Act as a "public body performing a function of government in Canada" if it has passed bylaws under both sections 81 and 83 of the Indian Act. The CCRA also considers Indian bands that have reached an advanced stage of development as was formerly required by section 83 of the Indian Act to be performing a function of government.

Although paragraph 149(1)(c) of the Act exempts from taxation both a public body performing a function of government as well as a Canadian municipality, a corporation owned by a public body performing a function of government is taxable whereas a corporation owned by a Canadian municipality may be exempt by virtue of paragraph 149(1)(d.5) of the Act.

It is the CCRA's view that in order for an Indian band to be considered a municipality, it would have to fit within the facts of the The Pas Indian Band in the Otineka case (94 DTC 1234). In the Court's view, the powers conferred under the Indian Act and their exercise by The Pas Indian Band created a form of self-government that is an essential attribute of a municipality. There, the band had passed bylaws under both sections 81 and 83 of the Indian Act to regulate water, garbage disposal, weed control, domestic animal control, law and order, the provision of housing and other by-laws. It also provided services to band members in areas such as education, health care, social services, employment and training services, counselling and economic development. The Court concluded that the band was a municipality for the purposes of former paragraph 149(1)(d) of the Act (the relevant section prior to the enactment of paragraph 149(1)(d.5) of the Act) and that corporations owned by the band were exempt from taxation as municipally-owned corporations. In Otineka, the band held shares in a corporation that owned and operated a shopping mall on the reserve, and the band also held shares in a second corporation that owned and operated a building supply business located on the reserve.

The CCRA's general position on whether an Indian band may be considered a municipality in Canada has been provided in a number of technical interpretations and advance income tax rulings issued by this Directorate. However, its application to specific situations and circumstances can only be dealt with on a case by case basis and only through an application for an advance income tax ruling.

An advance income tax ruling is a written statement given by this Directorate to a taxpayer stating how the CCRA will interpret and apply specific provisions of existing Canadian income tax law to a definite transaction or transactions which the taxpayer is contemplating. We will only provide an advance income tax ruling for specific proposed transactions, within the guidelines set out in Information Circular IC 70-6R4 titled Advance Income Tax Rulings which may be obtained on the Internet at http://www.ccra-adrc.gc.ca/menu/EmenuKKB.html. Where the enquiry concerns an ongoing situation with no proposed transaction, the enquiry should be addressed to the local tax services office.

As discussed above, in order to make a determination that an Indian band provides substantially the same services to its band members on the reserve as any municipality in Canada of comparable size, a review must be made of all the relevant facts and circumstances to determine if they are similar to the facts in the Otineka case. Sufficient documentation should be provided to support this conclusion. Such documentation could include a list of services and programs provided to members of the band along with documentation describing the extent and magnitude of the band's involvement in the services and programs listed. The documentation may also include a list of by-laws passed by the band, along with supporting documentation such as copies of the signed bylaws, copies of ministerial approval of the bylaws passed under section 81 or 83 of the Indian Act, and evidence of the manner in which the bylaws are being enforced during the periods which are of concern.

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For your information a copy of this memorandum will be severed using Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Canada Customs and Revenue Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed under the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

We trust that the above comments will be of assistance.

Mickey Sarazin, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch