2004 Ruling 2003-0048341R3 - Indian Band as Public Body

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: Does a particular First Nation qualify as a public body performing a function of government for purposes of paragraph 149(1)(c)?

Position: Yes

XXXXXXXXXX 								2003-004834

XXXXXXXXXX, 2004

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling - XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX in which you request an advance income tax ruling on behalf of the taxpayer, the XXXXXXXXXX (the "First Nation").

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.

Facts

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

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 is served by the XXXXXXXXXX Tax Services Office and by the XXXXXXXXXX Taxation Centre.

3. The First Nation has XXXXXXXXXX (the "Reserve"). The Reserve is located more specifically on XXXXXXXXXX.

4. The First Nation also owns lands without reserve status ("Non-reserve Lands"). The Reserve and the Non-Reserve Lands are collectively referred to as the "Territory".

5. The First Nation is currently comprised of XXXXXXXXXX registered members ("Members"), all of whom are Indians for the purposes of the Indian Act. Of the total First Nation membership, XXXXXXXXXX Members are resident on the Reserve. The non-Reserve resident Members generally live in a variety of locations outside of the Reserve and many of them work on the Reserve.

6. The First Nation is governed by a Chief and Band Council elected by the Members pursuant to section 11 of the Indian Act. All Members are eligible to vote for the Chief and Band Council. The Chief and Band Council are responsible for the governance of the First Nation and represent the First Nation in all matters.

7. XXXXXXXXXX.

8. The First Nation has implemented a Financial Management Bylaw for the purposes set out in section 83(1) of the Indian Act. The by-law governs the receipt, management, expenditure, control and recording of the First Nations funds, and the administrative structure of the First Nation that manages the funds.

9. The First Nation is in the process of developing an election code in which some or all of the following may be addressed; use for other public office elections other than Chief and Band Council, appeal board composition and process, penalty provisions, and campaigning periods.

10. A joint ratification plan is in process between the First Nation, Indian and Northern Affairs Canada ("INAC") and First Nations Land Management Resource Centre whereby the First Nation would become a signatory to the Framework Agreement under the First Nations Land Management Act. The Framework Agreement establishes a process by which the First Nation could consider the option of assuming control over its Reserve and land resources by:

? developing a land code
? concluding an individual transfer agreement with Canada; and
? ratifying the land code and transfer agreement through a vote of eligible voters.

11. Fire services are provided by the First Nation for the Territory using a volunteer Fire Department. The facilities for the volunteer fire crew are provided by the Band Council.

12. Ambulance services are provided by ambulance services of the XXXXXXXXXX.

13. Police service is provided by XXXXXXXXXX Police Services through a detachment located on the Reserve in a Band Council owned facility. A policing committee provides the governance on policing matters and is a sub committee of the Chief and Band Council.

14. Water and sewer services are provided to all Reserve-resident members of the First Nation. Fees are charged for these services.

15. Garbage collection is provided to all Reserve-resident members of the First Nation and fees are charged for this service. The First Nation has a contract with XXXXXXXXXX for the removal of all waste materials.

16. All areas of the Reserve are serviced with electricity supplied by XXXXXXXXXX. The First Nation has entered into an agreement with XXXXXXXXXX for hydro services provided to community owned facilities.

17. The First Nation owns and maintains several buildings on the Reserve for the use and safety of the Members. These include:

? Police Station
? Fire Station
? Public Works garage
? Mall Complex
? Administration building
? School building and offices
? Training centre
? Health centre
? Child care centre
? Library

18. 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
? Communication services
? Family support services
? Youth services
? Community services
? Social and education counseling
? Library
? Literacy
? Road and public work maintenance
? Child development
? Health services
? Housing
? Animal control
? Social assistance

19. Recreation facilities such as a ball field and community park are maintained for use by Members.

20. Non-native tenants of the First Nation are subject to maintenance fees for the provision of the following services: police, garbage collection, fire and road maintenance.

21. The First Nation owns and maintains school buses used for the transportation of students to its school.

22. The First Nation employs several individuals in the course of carrying out its programs, including, among others:

? First Nations Manager
? Comptroller
? Public Utilities Manager
? Housing Manager
? Director of Social Services
? Economic Development Officer
? Lands Manager
? Negotiations Coordinator
? Director of Children's Service
? AHS/Daycare Manager
? Director of Health
? Job Connect Manager
? Fire Chief
? Education Administrator
? School Principal
? School teachers and teachers aides

23. 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 provides housing for eligible Members. Funding for these homes is provided by INAC. Recipients of the First Nation-provided housing are determined by need. The First Nation is in the process of negotiating with a major financial institution to provide mortgage financing to its Members.

25. The First Nation has passed XXXXXXXXXX bylaws pursuant to section 81 of the Indian Act. These bylaws include among others; regulation on traffic, assessment fees for fire and police, licensing of dogs, speed limit in school zone, establishment of police constables and regulation of recreational activities.

26. The First Nation provides schooling for all children on the Reserve with primary schooling provided at XXXXXXXXXX, located on the Reserve. Secondary schooling is provided in XXXXXXXXXX.

27. The First Nation undertakes several programs which are federally funded programs and services directly funded by the government of Canada.

28. The First Nation has signed funding agreements with INAC (formerly the Department of Indian Affairs and Northern Development).

29. The First Nation has entered into a Consolidated Contribution Agreement with the Government of Canada whereby it is the responsibility of the First Nation to provide health programs and services to its Members via transferred programs or targeted programs.

30. The First Nation has entered into an agreement with the XXXXXXXXXX for various targeted programs.

31. The First Nation has entered into an agreement with the XXXXXXXXXX for community support services. This agreement provides funding to the First Nation for the XXXXXXXXXX program.

32. The First Nation has entered into an agreement with the XXXXXXXXXX to provide funding for the XXXXXXXXXX Program.

33. The First Nation has undertaken to provide specific programs related to preventative health strategies, health education, nursing, homecare, footcare, etc. Health care services for the First Nation are operated by the XXXXXXXXXX and its medical personnel through facilities located on the Reserve.

34. The First Nation has an emergency response plan which is operated and maintained by Health services and Fire services.

35. The First Nation has been and is currently in the process of negotiating several claims with the Government of Canada as follows:

a) The XXXXXXXXXX Claim for which a statement of claim was filed on XXXXXXXXXX. A Memorandum of Understanding ("MOU") was signed XXXXXXXXXX and an agreement in principle reached XXXXXXXXXX. The agreement in principle was never enacted. Negotiations were re-established and are ongoing with a new position paper tabled with the Government of Canada on XXXXXXXXXX .

b) The XXXXXXXXXX Claim file was opened in XXXXXXXXXX and has been ongoing for XXXXXXXXXX years. A settlement agreement dated XXXXXXXXXX was tabled among the XXXXXXXXXX and the First Nation. A Settlement Agreement has been in process from XXXXXXXXXX among the XXXXXXXXXX, the First Nation and INAC. Referendum votes were held in XXXXXXXXXX and rejected, a new referendum vote was held on XXXXXXXXXX.

c) A statement of claim for the XXXXXXXXXX Claim was filed on XXXXXXXXXX. Mediation meetings were held in XXXXXXXXXX. There has been no further progress to date.

d) A submission to specific claims was made in XXXXXXXXXX related to the XXXXXXXXXX In the new position paper tabled with the Government of Canada dated XXXXXXXXXX this specific claim is addressed.

e) The First Nation is also in the process of examining its position related to the XXXXXXXXXX.

36. The First Nation has undertaken to manage its own economic development. The First Nation's Economic Development Officer designs, manages and delivers training to promote economic development and employment for Members. In addition a Corporate Development Officer oversees corporate and industry development. The First Nation owns and operates XXXXXXXXXX (the "Business"), school buses, and XXXXXXXXXX.

Proposed Transactions

37. The First Nation will incorporate a federally incorporated company (the "Corporation"). All issued shares of the Corporation will be owned by the First Nation.

38. The First Nation will dispose of the operations and facilities associated with the Business at fair market value to the Corporation resulting in a capital gain to the First Nation. The Corporation will operate the Business entirely on the Reserve.

39. The Business will earn profits and these profits will be distributed as dividends to the shareholder First Nation.

Purpose of the Proposed Transactions

40. The purpose of the proposed transactions is to transfer the operation of the Business to a corporation in order to separate the business risks related to its operation from 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 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 capital gain described in 38 above, or the dividend income described in 39 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 Revenue Agency provided that the proposed transactions are completed by XXXXXXXXXX.

Yours truly,

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