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 and/or is negotiating agreements with the federal government with respect to various subjects including a land settlement claim, health care and fishing. The First Nation provides schooling for its Members up to grade 6. The First Nation provides and administers a fairly extensive list of public works, social services and infrastructure programs. The First Nation has passed by-laws under section 81 of the Indian Act.
XXXXXXXXXX 2003-002840
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 for the purposes of the Indian Act. The First Nation's mailing address is:
XXXXXXXXXX.
2. The First Nation would file its income tax returns with the XXXXXXXXXX Taxation Centre and is in the area served by the XXXXXXXXXX Tax Services Office.
3. The First Nation has a reserve located XXXXXXXXXX and comprises XXXXXXXXXX of land, all of which has reserve status under the Indian Act (the "Reserve").
4. The First Nation also owns lands in addition to the Reserve consisting of XXXXXXXXXX (the "Territory"). Reserve status for the Territory is being sought.
5. The First Nation currently has XXXXXXXXXX members ("Members"), of whom XXXXXXXXXX live on the Reserve. All of the Members are Indians for the purposes of the Indian Act. The non-resident Members generally live and work in a variety of locations outside the Reserve.
6. The First Nation is governed by a Chief and Band Council elected by the Members pursuant to XXXXXXXXXX. Resident and non-resident Members of the First Nation are eligible to vote for the Chief and Band Council. The Chief and Band Council are responsible for governance of the First Nation and represent the First Nation in all matters.
7. The First Nation has begun preliminary discussions with federal and provincial governments with respect to reaching a self-government agreement. These discussions are currently in the exploratory stage. The First Nation has joined the XXXXXXXXXX whose mandate it is to assist in these negotiations on behalf of its member First Nations.
8. Various "Peace and Friendship Treaties" signed in the 1700's apply to the First Nation.
9. The First Nation filed a land settlement claim in XXXXXXXXXX respecting a piece of land referred to as XXXXXXXXXX. This land was never transferred to the First Nation after being purchased by the federal government in XXXXXXXXXX pursuant to an Order in Council, to be added to the Reserve. The claim is pending Department of Justice review and resolution.
10. Various "Peace and Friendship Treaties" signed in the 1700's apply to this First Nation.
11. The First Nation has passed XXXXXXXXXX bylaws pursuant to section 81 of the Indian Act. The bylaws provide for XXXXXXXXXX.
12. The First Nation has signed a First Nation Funding Agreement with the Department of Indian Affairs and Northern Development (now Indian and Northern Affairs Canada ("INAC")) providing for the transfer of funds from INAC to the First Nation in order that the First Nation may provide specific services and programs to its Members and be accountable for the provision of these services and programs.
13. There is band-provided housing by the Band Council to eligible Members. INAC and Canada Mortgage and Housing Corporation provide funding for these houses. Allocations of band-provided housing are based on a Housing Policy established by the Band Council. This Housing Policy also codifies standards for appearance of all houses on the Reserve, including certificate of possession houses. All homes are built to Canadian National Housing Standards.
14. At the present time, on-Reserve Members do not pay property taxes to either the province or the Band Council.
15. The First Nation owns the water distribution system on the reserve. Fees are not charged for provision of water to the First Nation's Members.
16. The First Nation provides garbage collection to all Members on the Reserve. No fee is charged for this service. The Band office pays a contractor to provide these services. The Band Council has agreed with the provincial XXXXXXXXXX that Members must adhere to the XXXXXXXXXX standards for garbage separation and collection.
17. Snow removal is provided by the province and is paid by Band Council from funding provided by INAC.
18. Contract services are tendered and awarded in accordance with an established tendering policy dated XXXXXXXXXX.
19. The First Nation has its own fire department, equipment and building on the Reserve. The fire department consists of XXXXXXXXXX volunteer firefighters and XXXXXXXXXX fire trucks. Training and upgrading is provided on a periodic basis for the volunteers. Supplemental equipment is sometimes requested from a neighbouring community in the event of a significant emergency. Providing supplemental assistance is by verbal mutual agreement only.
20. All areas of the Reserve are serviced with electricity supplied by XXXXXXXXXX.
21. The First Nation owns and maintains several buildings on reserve for use by its Members. These include:
? a learning center
? cultural center
? day care facility
? health center
? band office and recreation complex
? school building with school board offices
? and tourism centre.
A ball field is located on the reserve for use by First Nation Members. A playground is also provided for use by First Nation Members.
22. All buildings are available for use by First Nation Members. Users fees and rental charges are levied for use of recreational and meeting facilities for certain activities. The Band Council establishes the user fees.
23. The First Nation employs several individuals in the course of carrying out its programs, including, among others:
? Band administrator
? Finance director
? Administrative services director
? Day care coordinator
? Part-time economic development officer
? Construction director
? Human resource director
? Director of Education
? Public works director
? Cultural director
? Learning centre coordinator
? Director of Health Services
? Director of Social Services
? Fisheries Administrator
? Fleet Manager
There are a number of other supervisors and staff employed by the First Nation in order to carry out its numerous programs.
24. The First Nation has entered into a tripartite agreement with the province, federal government and Royal Canadian Mounted Police. This agreement has been extended to provide policing services on the Reserve until XXXXXXXXXX.
25. The First Nation provides schooling for all children on the Reserve from kindergarten to Grade 6. Children in grades 7-12 are bussed to nearby schools in neighbouring communities. Day care is provided on the Reserve to support working parents. Fees are charged for this service.
26. By agreement, the First Nation pays tuition fees to the province of XXXXXXXXXX for all school-aged children enrolled in provincial schools. On behalf of the student, tuition fees are paid to the relevant institution for those Members enrolled in a post-secondary institution.
27. The First Nation also provides adult education such as GED, academic skills upgrading, computer training, and professional development.
28. The First Nation entered into a Fisheries Agreement with the Government of Canada in XXXXXXXXXX, in recognition of the First Nation's treaty rights to fish commercially. Each First Nation is responsible to negotiate with the federal government for an allocation of annual quotas for various fisheries. The First Nation has used this agreement as the impetus to train its Members in the fishing industry to provide employment. The First Nation provides training to those Members interested in a career in the fisheries, as fishers, guardians or rangers. The First Nation had XXXXXXXXXX with respect to regulating food, social and commercial fisheries activities carried out by First Nation members in XXXXXXXXXX in keeping with the First Nation's long-standing practice of regulating its own resources.
29. The First Nation has entered into a Health Services Integrated Contribution Agreement with the Government of Canada whereby the First Nation has accepted responsibility to provide specific health programs and services to its Members. This agreement was signed on XXXXXXXXXX. The services to be provided are set out in the Integrated Community Based Health Services Plan. Programs include those related to prenatal care, infant development, health education, substance abuse and addiction services, mental health, home care, and other community health issues. The First Nation has built a health centre on the Reserve in order to facilitate delivery of these programs. The Band Council is currently negotiating with Health Canada to enter into a Health Services Transfer Agreement for the coming year.
30. The First Nation has entered into an agreement with the Province of XXXXXXXXXX to recover XXXXXXXXXX taxes paid by Members residing on the Reserve. In recognition of the First Nation's right to be exempt from taxation under section 87 of the Indian Act, the Province will reimburse the First Nation an amount to be considered equivalent to XXXXXXXXXX taxes paid by Reserve-resident Members and related to XXXXXXXXXX products consumed on the Reserve. The amount is determined by formula.
31. The First Nation is currently negotiating an agreement with the Province similar to that described above in respect of XXXXXXXXXX taxes paid by First Nation Members.
32. The First Nation has entered into an agreement with the Government of Canada to assume responsibility for providing specific human resource programs on reserve. Programs include child care support for working or studying parents, internship programs for youths to provide skills, work experience and entrepreneurial assistance, self-employment assistance programs, etc.
33. The First Nation has undertaken to manage its own economic development. The economic development officer has been integral in establishing a long-term tourism plan for the First Nation. Recently, the First Nation constructed a major tourism facility on the Reserve and constructed several walking trails on the Reserve, which will be marketed to XXXXXXXXXX tourists in the future. The purpose of this endeavour is to provide jobs for First Nation Members and to provide funds for further economic development in the community.
34. The Band Council is the largest employer of Reserve-resident Members. However, nearly all of the employment is seasonal. The employment rate for residents is generally between XXXXXXXXXX% in the spring/summer seasons and between XXXXXXXXXX% in the fall/winter seasons.
35. Entrepreneurial development has contributed to employment within the First Nation, but on an extremely limited basis. There are currently XXXXXXXXXX private businesses operating within the First Nation, the majority of which are businesses exploiting the communal fisheries license allocated to the First Nation. These businesses each tend to employ only a few Members. The Band Council employs a number of other Members (see above information regarding programs offered by the First Nation).
36. Employees of the First Nation participate in an employee pension plan under which employees contribute through payroll deductions and the First Nation matches such contributions.
Proposed Transactions
37. XXXXXXXXXX (the "Corporation") will be incorporated under the XXXXXXXXXX Business Corporations Act. The Corporation will be a Canadian corporation within the meaning of subsection 89(1) of the Act.
38. The issued share capital of the Corporation will consist of XXXXXXXXXX common shares of which the First Nation will acquire XXXXXXXXXX. Each of the remaining XXXXXXXXXX common shares will be issued to XXXXXXXXXX other First Nations. A Band Council resolution will be passed to permit the Chief to represent the First Nation at all meetings of shareholders of the Corporation. The Chief of the First Nation will be appointed as one of the XXXXXXXXXX directors of the Corporation.
39. No person has a right under contract, in equity or otherwise, either immediately or in the future and either absolutely or contingently, to shares or capital of the Corporation nor to acquire shares or capital of the Corporation.
40. The Corporation, the First Nation and XXXXXXXXXX other First Nations will enter into a limited partnership agreement forming the XXXXXXXXXX (the "LP"). A total of XXXXXXXXXX limited partnership units will be sold to the limited partners.
41. The Corporation will subscribe to acquire one partnership unit of the LP and will enter into an agreement to act as the general partner.
42. The First Nation will subscribe to acquire XXXXXXXXXX partnership units of the LP at $XXXXXXXXXX per unit.
43. The LP will provide loans to its First Nations limited partners, or to members of such First Nations, in accordance with the loan policy that will be set out by the Corporation in its capacity as general partner. The loans will be at commercial rates of interest and advanced to support economic development initiatives of the XXXXXXXXXX First Nations partners, which will provide employment to the members of these XXXXXXXXXX First Nations.
44. Income and losses for any particular fiscal year of the LP will be allocated at the end of such fiscal period to the partners, pro rata in accordance with the number of units registered in the name of each partner.
45. There will be no distributions of income or assets of the LP to the partners except upon dissolution of the LP.
46. The First Nation will apply for a loan(s) in order to establish and operate unincorporated businesses that will employ its Members. These unincorporated businesses may or may not be located on the Reserve. The income from these businesses will be used by the Band Council to improve economic and living conditions for its Members.
Purpose of the Proposed Transactions
47. The purpose of the proposed transactions is to promote economic development within the First Nation. The goal is to assist in developing a sustainable, economically self-sufficient community over time, by helping to establish businesses that will be owned by the First Nation or one of its Members to provide employment and job training for Members and support projects and activities for the general benefit 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, we rule as follows:
A. The First Nation is 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 allocated by the LP as described in 44 above or on the income earned by the First Nation from its unincorporated businesses as described in 46 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 proposed transactions are implemented by XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2003
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2003
Email this Content