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:
Does a particular First Nation qualify as a public body performing a function of government for purposes of paragraph 149(1)(c)?
Position: Yes
Reasons:
The First Nation has entered into a Health Services Transfer Agreement with the federal government. The First Nation provides primary schooling for its Members. The First Nation provides and administers a fairly extensive list of public works, social services and infrastructure programs.
XXXXXXXXXX 2003-002834
XXXXXXXXXX, 2003
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling - XXXXXXXXXX (the "First Nation")
This is in reply to your letter of XXXXXXXXXX in which you request an advance income tax ruling on behalf of the above-named taxpayer.
We understand that, to the best of your knowledge and that of the taxpayer, none of the issues involved in the ruling request is:
(i) in an earlier return of the taxpayer or a related person,
(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person,
(iii) under objection by the taxpayer or a related person,
(iv) before the courts, or
(v) the subject of a ruling previously issued by the Directorate to the taxpayer or a related person.
Unless otherwise stated, all references to a statute are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date of this letter, (the "Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
Facts
1. The First Nation is an Indian Band as defined under section 2 of the Indian Act. Its mailing address is XXXXXXXXXX.
2. The First Nation's Business Number is XXXXXXXXXX. It deals with the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Taxation Centre.
3. The First Nation has lands with reserve status under the Indian Act in XXXXXXXXXX. These XXXXXXXXXX reserves (collectively the "Reserve") are individually known as XXXXXXXXXX (the "Main Reserve"), XXXXXXXXXX.
4. The First Nation currently has XXXXXXXXXX members ("Members") with XXXXXXXXXX Members being resident on the Reserve. Most of the reserve-resident Members live on the Main Reserve.
5. The First Nation is governed by a Chief and Band Council elected by the Members pursuant to section 11 of the Indian Act.
6. The First Nation has a Canada First Nation Funding Arrangement with the Department of Indian Affairs and Northern Development (now the Department of Indian and Northern Affairs Canada, "INAC").
7. The First Nation has renewed a Health Services Transfer Agreement with Health Canada.
8. The First Nation provides and/or administers an extensive list of public works, social services and infrastructure programs including but not limited to:
? Land claims
? Economic development
? Education services
? Recreation
? Forestry services
? Family support services
? Youth Services
? Community services
? Social, addiction and education counselling
? Library
? Literacy enhancement
? Road and public work maintenance
? Child development services
? Health Services
? Housing
? Animal control
? Garbage collection on the Reserve
? Social Assistance
9. The First Nation also provides a number of educational programs and services to its reserve-resident Members, such as computer training, academic skills upgrading, wellness and life skills programs and professional development.
10. The First Nation owns and maintains several buildings and facilities located on the Main Reserve including:
? First Nation offices
? Primary school
? Children's playground
? Child development centre
? Computer lab
? Gymnasium
? Library
? Health station
? Water pump house
? Garbage transfer station
? Playground
? Fish hatchery
? Hunting lodge and trap line
11. The First Nation owns and operates a XXXXXXXXXX square foot building. Within this building, the First Nation operates and provides for the benefit of all of its Members: a) primary school classes, b) a library, c) a computer and internet lab, d) a women's club and e) a child development centre. All of the health, social development and First Nation administration services are provided from within this facility.
Some elementary school children are bussed to the school on a daily basis, with the First Nation being responsible for providing the bus service.
12. The First Nation has built most of its Reserve-resident Members' housing units. Reserve-resident Members who receive guarantees from INAC may construct their own houses provided the location and plans are approved by the Band Council.
13. The First Nation supplies most of its homes with treated water. Approximately XXXXXXXXXX% of the residences on the Reserve receive treated water and the balance of homes have wells. The First Nation employs a Member who constantly monitors and tests the water supply.
14. The First Nation undertook capital planning in the XXXXXXXXXX with INAC. As a result, locations have been mapped out for new subdivisions and other community beneficial projects including water services.
15. All areas of the Reserve are serviced with electricity supplied by XXXXXXXXXX (the "Hydro Supplier"). The First Nation monitors this service on behalf of its Members to ensure an appropriate level of service. When service issues arise, the First Nation often resolves these issues with the Hydro Supplier on behalf of its Members.
16. The First Nation is developing a Community Plan that regulates land use and activities within the Reserve. The First Nation's Community Plan will guide development within the Reserve. All lands within the Reserve are held in a traditional manner and are owned in common by the Members.
17. The First Nation has agreements with individual Members and businesses for their use of Reserve lands and any improvements thereon.
18. The First Nation employs an administrator who, under the direction of the Band Council, is responsible for the administrative management of the First Nation.
Proposed Transactions
19. A Crown Grant has been approved whereby upon completion, XXXXXXXXXX (the "Property Owner") will purchase XXXXXXXXXX land from the Crown (the "Real Property"). The Real Property is not located on the Reserve.
20. The First Nation will enter into a partnership agreement (the "Partnership Agreement") with the Property Owner (the "Partnership"). The First Nation and the Property Owner (together, the "Partners" or individually, the "Partner") will be equal partners in the Partnership and will each make the capital contributions described in 23 and 24 below.
21. The Partnership Agreement will provide for the construction of a XXXXXXXXXX (the "Facility") on the Real Property. The Partnership will enter into a fixed-price contract with XXXXXXXXXX for the construction of the Facility.
22. The estimated cost of the Facility including the land, all infrastructure, construction and furnishings will be approximately $XXXXXXXXXX.
23. The Property Owner will make a capital contribution of $XXXXXXXXXX to the Partnership. This contribution will be comprised of the Real Property, any design and infrastructure costs incurred and cash. The cash will be used to finance the construction of the Facility.
24. The First Nation will borrow $XXXXXXXXXX from a financial institution using the Real Property as security for the loan. The First Nation will use this $XXXXXXXXXX to make its capital contribution to the Partnership. This contribution will be used toward financing the construction of the Facility.
25. Upon completion of the construction of the Facility, the Partnership will lease the Facility to XXXXXXXXXX (the "Tenant") pursuant to a written lease agreement (the "Lease"). Under the terms of the Lease, the Tenant will pay annual rent of $XXXXXXXXXX for the use of the Facility. The Tenant will be responsible for all costs of operating and maintaining the Facility, including payment of all taxes related thereto.
26. The Property Owner and the Tenant are non-arm's length parties.
27. Pursuant to the Partnership Agreement, the Partners will have equal interests in all Partnership assets and liabilities. Accordingly, each Partner will be entitled to receive one-half of the income earned by the Partnership in each fiscal year.
Purpose of the Proposed Transactions
28. The purpose of the proposed transactions is to generate income to support the needs and development of the First Nation.
Ruling 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, we rule as follows:
A. The First Nation will be considered 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 of the Act by the First Nation on the income described in 27 above.
The above advance income tax ruling, which is based on the Act and Regulations in their present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R5 Advance Income Tax Rulings, dated May 17, 2002, and is binding on the Canada Customs and Revenue Agency provided that the transactions are completed by XXXXXXXXXX.
Nothing in this Advance Income Tax Ruling should be construed as implying that we are ruling on any commercial or taxation aspect of the proposed transactions that may be raised by the non-arm's length relationship between the Property Owner and the Tenant. Neither are we confirming that the rent payable under the Lease represents fair market value consideration for the leasing of the Facility.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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