2004 Ruling 2003-0035821R3 - Taxation of Indian Trust

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.

Principal Issues: (A) Whether the Band is a public body performing a function of government (B) Whether the receipt of the Settlement Capital is taxable. (C) Are per capita distributions income from a source within the meaning of paragraph 3(a) of the Act. (D) Whether subsection 75(2) will apply to the Trusts' income. (E) Whether any income of the trust that is not subject to 75(2) will be considered payable to the First Nation and thus deductible pursuant to 104(6). (F) Whether any distribution by the trust to the First Nation will be governed by 107(2)..

Position: (A) Yes (B) No. (C) No. (D) Yes. (E) Yes. (F) Yes, subject to subsections 107(2.001), (2.002) and (4) to (5).

Reasons: (A) The First Nation is actively involved in the community and provides extensive services and programs (B) Compensation is being paid in respect of the interest of a Band in surrendered lands and should therefore be exempt from taxation by virtue of paragraph 81(1)(a) of the Act and 87(1)(a) of the Indian Act. (C) The amounts would not be considered income from a source within the meaning of paragraph 3(a) of the Act. (D) The First Nation will be the settlor of the Trust, directing Canada to make payments to the Trust on behalf of the First Nation. The First Nation is the sole beneficiary and on the termination of the Trust, all of the Trust's property will be transferred to the First Nation. (E) Section XXXXXXXXXX provides that if income earned exceeds income realized the excess shall become payable to the First Nation and will be evidenced by a demand promissory note. (F) The trust will qualify as a personal trust since the First Nation will be the settlor of the trust and the interest will not be acquired for consideration..

XXXXXXXXXX 2003-003582

XXXXXXXXXX, 2004

Dear XXXXXXXXXX:

RE: Advance Income Tax Ruling
XXXXXXXXXX ("First Nation")

This is in reply to your letter of XXXXXXXXXX , in which you requested an advance income tax ruling on behalf of the First Nation. We also acknowledge the information provided in our various telephone conversations.

To the best of your knowledge, and that of the First Nation, none of the issues involved in the ruling request is:

(a) in an earlier return of the First Nation or a related person,

(b) being considered by a tax services office or taxation center in connection with a previously filed tax return of the First Nation or a related person,

(c) under objection by the First Nation or a related person,

(d) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, or

(e) the subject of a ruling previously considered by the Directorate in respect of the First Nation or a related person.

You provided us with the following documents:

(a) a draft copy of the Settlement Agreement; and

(b) a draft copy of the Trust Agreement.

All terms used herein that are defined in the Income Tax Act (the "Act") have the meaning given in such definition unless otherwise indicated.

DEFINITIONS

In this letter:

"Additions to Reserve Trust Account" means the Trust Account referred to in Article XXXXXXXXXX and to which certain monies shall be transferred from the General Trust Account, in accordance with Article XXXXXXXXXX of the Trust Agreement, whose use shall be regulated in accordance with the terms and conditions set out in Schedule "XXXXXXXXXX" and Schedule "XXXXXXXXXX" of the Trust Agreement;

"Advancement of Education Trust Account" means the Trust Account referred to in Article XXXXXXXXXX of the Trust Agreement and to which certain monies shall be transferred from the General Trust Account, in accordance with Article XXXXXXXXXX of the Trust Agreement, whose use shall be regulated in accordance with the terms and conditions set out in Schedule "XXXXXXXXXX" and Schedule "XXXXXXXXXX" of the Trust Agreement;

"Annual Distribution" means income arising from the investment of Trust Property, that according to the Trust Agreement is to be distributed by the Trustees to the Band Income Account and/or the Band Advancement of Education Account, as the case may be, during each Fiscal Year subject to Articles XXXXXXXXXX and XXXXXXXXXX of the Trust Agreement;

"Applicants" means the First Nation and the Trust;

"Authorized Expenses" means the expenses the Trust is authorized to pay from its account, as more particularly described in the Trust Agreement;

"Authorized Investments" means any form of investment of the Trust Property which is authorized by the terms of the Trust Agreement, the range of which is more particularly set forth in Schedule "XXXXXXXXXX" of the Trust Agreement;

"Band" means the First Nation;

"Band Account" means one of the accounts listed in Article XXXXXXXXXX of the Trust Agreement and that is opened by the Band at an Institution situated on Reserve;

"Band Account Management Regulations" means the regulations that are to be developed and implemented by the Council as provided for in Article XXXXXXXXXX of the Trust Agreement;

"Band Advancement of Education Account" means the Band Account to which certain monies shall be transferred from the Advancement of Education Trust Account, in accordance with Article XXXXXXXXXX of the Trust Agreement, whose use shall be regulated in accordance with the terms and conditions set out in Schedule "XXXXXXXXXX" of the Trust Agreement, Article XXXXXXXXXX of the Trust Agreement and the Band Account Management Regulations;

"Band Authorized Expense Account" means the Band Account to which certain monies shall be transferred from the General Trust Account and the Band Income Account in accordance with Article XXXXXXXXXX and Schedule "XXXXXXXXXX" of the Trust Agreement, whose use shall be regulated in accordance with the terms and conditions set out in Schedule "XXXXXXXXXX" of the Trust Agreement, Article XXXXXXXXXX of the Trust Agreement and the Band Account Management Regulations;

"Band Capital Account" means the Band Account to which certain monies shall be transferred from the General Trust Account, in accordance with Articles XXXXXXXXXX and XXXXXXXXXX of the Trust Agreement, whose use shall be regulated in accordance with the terms and conditions set out in Schedule "XXXXXXXXXX" of the Trust Agreement, Article XXXXXXXXXX of the Trust Agreement and the Band Account Management Regulations;

"Band Development" means one or more of the following:

(a) Programs and services provided by the First Nation for the benefit of its Members of the type and magnitude provided by a public body performing a function of government in Canada. Without limiting the generality of the foregoing, such First Nation programs and services may include programs and services relating to:

? social services, assistance and development;
? housing;
? the elderly;
? youth;
? health;
? education;
? justice and police;
? fire Control;
? cultural awareness, maintenance and development;
? recreation;
? the purchase of land, including provision for the price and acquisition costs therefore;
? improvements to Reserve lands including but not necessarily limited to residential and non-residential buildings, recreational and cultural grounds, pipelines and infrastructure such as roads and utilities;
? disaster relief;
? band administration;
? Indian registry for births, marriages and deaths;
? Band equipment and inventory ancillary to the foregoing programs and services; and
? the Band's costs of conducting a meeting or referendum pursuant to sections 39(1) or 39(2) of the Indian Act or such future legislation as may amend or replace these provisions from time to time hereafter.

(b) Economic development including:

? business or commercial property or interests for which the Band has a direct or indirect beneficial interest either alone or together with one or more third party(s), the object of which is to make a profit for the purpose of financing the programs and services described herein;
? business or commercial property or interests owned by one or more Members, the object of which is to make a profit for the benefit of the Band and its Members;

"Band Income Account" means the Band Account to which certain monies shall be transferred, in accordance with Article XXXXXXXXXX and Article XXXXXXXXXX of the Trust Agreement, whose use shall be regulated in accordance with the terms and conditions set out in Schedule "XXXXXXXXXX" of the Trust Agreement, Article XXXXXXXXXX of the Trust Agreement and the Band Account Management Regulations;

"Beneficiary" means, the First Nation, being the body of Indians for whose use and benefit in common the Trust Property is settled by the terms and conditions of the Trust Agreement;

"Canada" means Her Majesty the Queen in Right of Canada;

"CRA" means the Canada Revenue Agency;

"Claim" is defined in the Settlement Agreement to mean all facts, matters and issues arising or resulting from one or more of the following allegations:

XXXXXXXXXX;

"Compensation" means the sum of $XXXXXXXXXX to be paid by Canada pursuant to the Settlement Agreement, all of which is to be deposited by Canada on behalf of the First Nation in the Trust Account established pursuant to the Trust Agreement to hold the assets of the Trust;

"Compensation Payment" means the sum paid by Canada to the First Nation as set out in XXXXXXXXXX the Settlement Agreement;

"Corporate Trustee" is defined in the Trust Agreement to mean a trust company registered to provide trust services throughout Canada, that is a member institution for which the Canada Deposit Insurance Corporation has a duty to insure deposits pursuant to the Canada Deposit Insurance Corporation Act, R.S.C. 1985 c. C-3 as amended or replaced from time to time, and that is selected by Council as a Corporate Trustee in accordance with and subject to Article XXXXXXXXXX of the Trust Agreement;

"Council" means, in respect of the First Nation, the "council of the band" as defined by subsection 2(1) of the Indian Act;

"Council Resolution" means a written resolution signed by a quorum of the Council of the First Nation adopted at a duly convened meeting of the Council;

"Fiscal Year" means the Fiscal Year of the Trust as set out in Article XXXXXXXXXX of the Trust Agreement;

"Income Earned" means the income from the investment of Trust Property for a Fiscal Year as computed in accordance with the Act but without reference to subsections 75(2) and 104(6) and paragraph 82(1)(b) thereof;

"Income Realized" means the Income Earned that has actually been received from the investment of Trust Property in the same Fiscal Year as it was earned;

"Long Term Trust Capital" means all Trust Property other than Trust Property which is Short Term Trust Capital; Income Earned, Income Realized and any other income arising from the investment of Trust Property that is included in the Annual Distribution;

"Indian Act" means the Indian Act, R.S.C. 1985, c. I-5, as amended, and the regulations made pursuant to that Act;

"Institution" is defined in the Trust Agreement to mean any bank or trust company that is a member institution of the Canada Deposit Insurance Corporation established pursuant to the Canada Deposit Insurance Corporation Act, R.S.C. 1985, c.C-3, and means any credit union incorporated, continued or registered pursuant to the Credit Union Act, 1998, S.S. 1998, c. C-45.2;

"Member", in respect of the First Nation, means "member of a band" as defined in subsection 2(1) of the Indian Act, and "Members" means the group of persons each of whom is a Member;

"Qualified Member" is a person who is living on the Effective Date of the Settlement Agreement and is a Member or becomes a Member within XXXXXXXXXX months following the Effective Date of the Settlement Agreement;

"Reserve" means "reserve" as defined in subsection 2(1) of the Indian Act;

"Settlement Agreement" means XXXXXXXXXX Settlement Agreement between the First Nation and Canada. The Settlement Agreement was ratified by the First Nation Members in a vote held XXXXXXXXXX;

"Short Term Trust Capital" means, subject to Article XXXXXXXXXX of the Trust Agreement, all Trust Property which is designated as Short Term Trust Capital by Articles XXXXXXXXXX and XXXXXXXXXX of the Trust Agreement, and where applicable capital gains retained to replenish previous short term capital losses as provided for in Article XXXXXXXXXX of the Trust Agreement;

"Trust", in respect of the First Nation, means the inter vivos trust (as defined in subsection 108(1) of the Act) to be established by the First Nation pursuant to the terms of the Trust Agreement and to be administered by the Trustees for the benefit of the First Nation in accordance with the terms of the Trust Agreement;

"Trust Account" means an account listed in Article XXXXXXXXXX of the Trust Agreement and that is opened by the Trustees at an Institution;

"Trust Agreement", in respect of the First Nation, means an agreement between the First Nation and the Trustees made in accordance with XXXXXXXXXX Trust Agreement to which the Trustees agree to hold and invest certain property (including the compensation under the Settlement Agreement) for the benefit of the First Nation;

"Trust Property" includes, subject to Article XXXXXXXXXX of the Trust Agreement, the property described in Article XXXXXXXXXX of the Trust Agreement; and

"Trustees" means both the corporate and non-corporate Trustees collectively.

Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:

FACTS

1. The First Nation is a "band" as defined in subsection 2(1) of the Indian Act. The First Nation's Council is empowered to make the decisions relating to the First Nation.

2. The Reserve of the First Nation is located in XXXXXXXXXX.

3. There are approximately XXXXXXXXXX Members of the First Nation, with approximately XXXXXXXXXX Members residing on the Reserve and approximately XXXXXXXXXX Members residing off the Reserve.

4. XXXXXXXXXX.

5. The First Nation has been in negotiations with Canada in respect of XXXXXXXXXX. The First Nation will be involved in the administration and implementation of the settlement of these Claims.

6. The Settlement Agreement is a full and final settlement of the action and the Claim.

7. The First Nation provides and administers an extensive list of public works, social services and infrastructure programs for its Members including but not limited to:

(a) band administration;

(b) expansion, maintenance or modification of public services and works on the Reserve including roadways, water treatment plant, sewer and lift stations;

(c) expansion, maintenance or modification of existing Reserve fire protection services and fire department;

(d) expansion, maintenance or modification of the housing program on the Reserve including the funding of construction of new housing, the maintenance of current housing and the operation of a housing authority;

(e) maintenance, modification or expansion of the existing education programs including the primary and secondary school system, XXXXXXXXXX, the post secondary programs, the adult learning centers and any related busing program. The education committee along with its education director administers a primary education program consisting of a nursery, kindergarten program along with grades one to twelve;

(f) expansion, modification or support of social service and social assistance programs administered by the First Nation on the Reserve;

(g) expansion, modification or support of existing recreational activities and facilities on Reserve;

(h) expansion, modification or support of the existing justice program including legal services such as restorative justice measures, alternative measures programs, pre-release programs and community training residences;

(i) medical and health services including community health nursing, community health education, dental services, environmental health services, home and community care, and medical transportation;

(j) human resources development (employment and training);

(k) economic development; and

(l) land use.

8. The First Nation has entered into Health Services Transfer Agreements with Canada. These agreements provide for the transfer of control of health programs and services and associated resources from the Minister of Health to the First Nation.

9. The First Nation has also entered into an arrangement with Canada to assume responsibility for the delivery of programs and services such as land management, social and economic development programs and capital infrastructure.

10. Assets and facilities maintained by the First Nation include:

(a) buildings (including a school, a band office, a health clinic and maintenance sheds);

(b) housing units;

(c) maintenance machinery, school buses and other vehicles;

(d) furniture, fixtures and equipment;

(e) recreational facilities;

(f) fire hall and fire engine;

(g) roads;

(h) sewer and lift stations; and

(i) water treatment plant.

11. The First Nation has passed bylaws under section 80 and 81 of the Indian Act.

12. Subject to 13, 14 and 15 below and apart from:

(a) hiring professional and other services to advance its Claim against Canada;

(b) hiring professional and other services to assist in negotiating the Settlement Agreement, described in this letter, in respect of the Claim; and

(c) borrowing monies from Canada and from a financial institution in order to pay the costs incurred for research and preparation of the Claim and for the negotiation of the Settlement Agreement;

the First Nation has not completed any significant transactions prior to the submission of this letter and will not undertake any significant transactions after the completion of the proposed transactions which may be part of the same series of transactions as the proposed transactions.

13. The First Nation and Canada have entered into the Settlement Agreement to settle the First Nation's Claim. The Settlement Agreement was ratified by the voting Members of the First Nation on XXXXXXXXXX.

14. The Trust Agreement has also been signed. Under the terms of the Trust Agreement, the First Nation has established the Trust to receive and administer the Settlement Capital on behalf of the Beneficiary. The first instalment of $XXXXXXXXXX of the Settlement Capital has been deposited into the General Trust Account.

15. In addition to the above Compensation payments, Canada has paid a further $XXXXXXXXXX to the First Nation as a reimbursement of its negotiation costs by applying that amount as a repayment of monies previously loaned to the First Nation by Canada.

16. All beneficial right, title and interest in the Trust Property has vested in the Beneficiary.

17. Under the terms of the Settlement Agreement, the First Nation absolutely surrendered to Canada, pursuant to the provisions of sections 38 and 39 of the Indian Act, all of the rights and interests the First Nation and its Members had or may now have in the Reserve lands that are the subject of the Claim.

PROPOSED TRANSACTIONS

18. Under Article XXXXXXXXXX of the Settlement Agreement, Canada has agreed to pay the Compensation of $XXXXXXXXXX to the First Nation in full and final settlement of the Claim. In addition to the $XXXXXXXXXX payment described in 14 above, Canada will pay the balance of the Compensation in instalments, as follows:

On the XXXXXXXXXX anniversary of the Effective Date $XXXXXXXXXX
On the XXXXXXXXXX anniversary of the Effective Date $XXXXXXXXXX
On the XXXXXXXXXX anniversary of the Effective Date $XXXXXXXXXX
On the XXXXXXXXXX anniversary of the Effective Date $XXXXXXXXXX

Notwithstanding the above, Canada reserves the right to accelerate these payments under the Settlement Agreement.

19. In recognition of ongoing loss by the First Nation in respect of the Claim, Canada agrees to pay further compensation up to $XXXXXXXXXX. That actual amount paid will depend upon the timing and extent of other payments made as more particularly calculated in Articles XXXXXXXXXX to XXXXXXXXXX of the Settlement Agreement.

20. Under the terms of the Settlement Agreement, the First Nation authorizes and directs Canada to deposit the instalment payments, as described in 18 above, and the amounts referred to in Articles XXXXXXXXXX to XXXXXXXXXX of the Settlement Agreement into the Trust Account on its behalf.

21. Subject to certain distributions to the First Nation and other terms and conditions of the Trust Agreement, the Compensation deposited into the Trust Account will be invested by the Trustees in Authorized Investments.

22. All beneficial right, title and interest in the Trust Property shall continue to vest in the Beneficiary.

23. For the first XXXXXXXXXX days, the Trust will have XXXXXXXXXX trustees. They will consist of XXXXXXXXXX. One of the Trustees is required to be such a trust company for at least the first XXXXXXXXXX-year period following the effective date of the Trust Agreement and for successive XXXXXXXXXX-year period following that XXXXXXXXXX-year period unless the Voting Members terminate that requirement. Subsequent to this XXXXXXXXXX day period, there will be XXXXXXXXXX Trustees, all of whom will be Members (other than the trust company). One such Trustee who is a Member must reside off the Reserve.

24. The Trust Property is available for use depending upon its categorization as Short Term Trust Capital, as described in 25 below, or as Long Term Trust Capital, as described in 26 below.

25. Short Term Capital may be used for the following purposes:

(a) for the investment of the Trust Property in Authorized Investments;

(b) for the payment of legal costs;

(c) for the payment of additional costs up to $XXXXXXXXXX for repayment of loans incurred to facilitate completion of the settlement of the Claim and ratification of the Settlement and Trust Agreements;

(d) for the transfer to the First Nation of up to $XXXXXXXXXX from the Compensation payments received, for the purpose of a primary per capita distribution (as described in 27 below) by the First Nation to Qualified Members;

(e) for the transfer to the Additions to Reserve Trust Account of the Trust;

(f) for the transfer to the Advancement of Education Trust Account of the Trust;

(g) for the transfer to the Band Capital Account of the First Nation of up to $XXXXXXXXXX;

(h) for the transfer to Band Authorized Expense Account of the First Nation of up to $XXXXXXXXXX from the Compensation received for the purposes of paying administration expenses of the Trust; and

(i) for the transfer to the Long Term Trust Capital on the XXXXXXXXXX .

26. Long Term Capital may be used for the following purposes:

(a) for the investment of the Trust Property in Authorized Investments;

(b) between the XXXXXXXXXX anniversary of the Trust, for the transfer to the First Nation of up to $XXXXXXXXXX from the Compensation payments received, for the purpose of a secondary capita distribution (as described in 28 below) by the First Nation to certain Members;

(c) following the XXXXXXXXXX anniversary of the Trust, for the transfer of up to XXXXXXXXXX% of the book value of the Trust Capital to the Band Capital Account of the First Nation; and

(d) upon termination of the Trust, the capital will be transferred to the First Nation.

27. The primary per capita distribution described in 25(d) above to cover members living at the effective date of the Settlement will be made in accordance with the procedures set out on Schedule XXXXXXXXXX to the Trust Agreement and is summarized as follows:

Age Group						Amount of Distribution

Qualified Members XXXXX years or older as $XXXXXXXX per Member
of the date of the Settlement

Qualified Members between the ages 			$XXXXXXXX  per Member
of XXXXXXX  as of the date of the
Settlement

Qualified Members under the age				See below
of XXXXX  as of the date of the Settlement		

A Qualified Member under XXXXXXXXXX years of age may, after his or her XXXXXXXXXX birthday receive $XXXXXXXXXX plus $XXXXXXXXXX for each year of or portion thereof between the effective date and his or her XXXXXXXXXX birthday. XXXXXXXXXX of the $XXXXXXXXXX may be paid immediately in trust to such Qualified Member's lawful guardian.

28. The secondary per capita distribution described in 26(b) above will be made to certain persons born after the effective date of the Settlement Agreement in accordance with the procedures set out on Schedule XXXXXXXXXX to the Trust Agreement. Each such secondary Qualified Member will be entitled to $XXXXXXXXXX and an additional $XXXXXXXXXX for each year calculated from the effective date of the Settlement Agreement to the time the distribution is made.

29. The Trust Agreement provides the following procedures by which Income Earned and Income Realized will be paid to the Beneficiary:

(a) on an on-going basis (but no later than the last day of each fiscal year) the Trustees will estimate the Income Realized and will distribute such amount to the Beneficiary by transferring it to the Band Income Account or Band Advancement of Education Account, as the case may be, unless:

(i) because of the nature of the Authorized Investments held by the Trust, it is not possible or it is not in the best interests of the First Nation to transfer the full amount, in which case the Trustees will transfer a smaller amount to the Band Income Account and will pay the difference to the First Nation by issuing a demand promissory note, dated no later than the last day of the fiscal year, to the First Nation as absolute payment;

(ii) unless the Income Earned relates to capital gains in which case only cumulative net capital gains are distributable to the particular First Nation account; and

(b) To the extent, if any, that Income Earned in a fiscal year exceeds Income Realized in the fiscal year, the Trustees will pay the excess to the First Nation by issuing a demand promissory note, dated no later than the last day of the fiscal year, to the First Nation as absolute payment.

The ability of the First Nation to demand payment of such note and the ability of the Trustees to honour such demand are not restricted in any way.

30. When the Trust terminates, the Trust Property will be transferred by the Trustees to the First Nation absolutely.

31. The Trustees of the Trust will be empowered to manage the property of the Trust and, specifically, will have the power and responsibility to invest the capital of the Trust, to borrow funds, make distributions or pay the amount owing under promissory notes to the First Nation within the parameters set forth in the Trust Agreement. The Trustees also have the power to select the institutions to be used by the Trust.

32. Pursuant to Article XXXXXXXXXX of the Trust Agreement, Article XXXXXXXXXX of the Trust Agreement will be modified to ensure that all promissory notes are payable on demand.

PURPOSE OF THE PROPOSED TRANSACTIONS

33. The purpose of the Proposed Transactions is:

(a) generally, to provide for the settlement of certain claims as set out in the Settlement Agreement and to ensure that funds are available for the future benefit of the First Nation; and

(b) specifically, to establish a Trust to administer the settlement proceeds and to facilitate the objectives set out in the Trust Agreement.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and the purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our rulings are as follows:

A. During any period beginning after the date of this letter in which the First Nation continues to provide services of the type referred to in 7 above, the First Nation 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 of the Act by the First Nation on its taxable income for such a period.

B The Compensation to be received from Canada in settlement of the Claim, as described in 14 and 18 above, will not be taxable to the First Nation but will be exempt according to paragraph 81(1)(a) of the Act pursuant to paragraph 87(1)(a) of the Indian Act.

C. The per capita distributions to be made by the First Nation to the Qualified Members, as described in 27 and 28 above, will not be income from a source to the Members within the meaning of paragraph 3(a) of the Act and will not be considered proceeds of disposition with respect to a Qualified Member's interest in the Reserve.

D. Any income or loss from the Settlement Capital received by the Trust as described in 18 and 19 above, or from property substituted therefor, and any taxable capital gain or allowable capital loss from the actual or deemed disposition of the Settlement Capital, or property substituted therefore, shall be deemed to be income or a loss, as the case may be, or a taxable capital gain or allowable capital loss, as the case may be, of the First Nation pursuant to subsection 75(2) of the Act.

E. Any income from the property of the Trust in a taxation year in respect of which subsection 75(2) of the Act does not apply, including, in particular, income on reinvested income from property of the Trust, will be considered to have become payable in the taxation year to the First Nation pursuant to the Trust Agreement and may be deducted in computing the income of the Trust for the taxation year pursuant to paragraph 104(6)(b) of the Act.

F. Subject to subsections 107(2.001), (2.002) and (4) to (5) of the Act, where any property of the Trust is distributed by the Trust to the First Nation and there is a resulting disposition of all or any part of the First Nation's capital interest in the Trust, the provisions of subsection 107(2) of the Act will apply.

COMMENTS

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and are binding on the CRA provided that amendments to the Trust Agreement as described in 32 above, are completed before XXXXXXXXXX. These rulings are based on the law as it currently reads and do not take into account any proposed amendments to the Act.

Yours truly,

XXXXXXXXXX
Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch