2005 Ruling 2004-0060241R3 - XXXXXXXXXX

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: 1. Whether the First Nation will be considered a public body described in 149(1)(c).

2. Whether the new trust to be established will be an inter vivos trust, as defined in 108(1).

3. Whether the new trust to be established will be a personal trust, as defined in 248(1).

4. Whether the new trust to be established will meet the requirements in ¶(g) of the definition of trust in 108(1), with the result that 104(4),(5) and (5.2) will not apply.

5. Whether 75(2) will apply to the trust's income.

6. Whether the trust will be able to make deductions under 104(6).

7. Whether 107(2) will apply to distributions from the trust to the First Nation.

8. Whether Pt. XII.2 tax will be exigible.

Position: 1. Yes, as determined by W/S 045, Aboriginal and Non-Profit Section.

2. Yes.

3. Yes.

4. Yes.

5. Yes.

6. Yes.

7. Subject to certain conditions, yes.

8. No.

Reasons: 1. The First Nation was found to be performing relevant activities.

2. Since it will not be a testamentary trust.

3. In order for an inter vivos trust to be a personal trust, there must be no beneficial interest in the trust acquired for consideration payable to the trust or to any person who has made a contribution to the trust. 108(7) provides that, for purposes of the definition of personal trust in 248(1), if only one person makes a contribution of property to the trust, that person will be deemed to have acquired his or her beneficial interest in the trust for no consideration. In the case at hand, the First Nation will be the sole contributor to the trust.

4. All interests in the trust have vested indefeasibily and the trust is not a spousal trust, alter ego trust, etc.

5. The First Nation will be the sole contributor of funds to the trust, and is the sole beneficiary (?) and the funds may revert to the First Nation, and during the Trust's existence, funds will not be disbursed without the First Nation's approval.

6. Any income (other than income subject to 75(2)) will be irrevocably payable to the First Nation.

7. s.t. normal provisos.

8. The sole beneficiary, the First Nation, although a tax-exempt entity, will not acquire its interest directly or indirectly from another beneficiary. As a result, the First Nation is not a designated beneficiary as defined in 210. In order to be relieved of the obligation to pay the tax, the Trust must certify that there are no designated beneficiaries of the Trust.

XXXXXXXXXX 		2004-006024

XXXXXXXXXX, 2005

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
XXXXXXXXXX
(collectively the "Applicants")
Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the Applicants.

To the best of your knowledge and that of the Applicants, none of the matters described in this ruling request is:

(i) in an earlier return of the Applicants 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 Applicants or a related person;

(iii) under objection by the Applicants or a related person;

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

(v) the subject of a ruling previously issued by the Income Tax Rulings Directorate.

The following documents were attached as exhibits to your ruling request:

? a copy of the latest draft of the Settlement Agreement (dated XXXXXXXXXX for reference);

????????a copy of the latest draft of the Trust Agreement (dated XXXXXXXXXX for reference);

? a summary of selected governmental and legislative powers and responsibilities exercised by the First Nation;

? a copy of the questionnaire regarding the community services provided by and the responsibilities exercised by the First Nation;

? a community profile of the First Nation published by DIAND; and

? an economic profile of the First Nation.

This document is based solely on the facts and proposed transactions described below. The documentation submitted with your request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader.

In this letter, unless otherwise indicated, all statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act"), and the following terms have the meanings specified:

Definitions

"Absolute Surrender" means the surrender by the First Nation of the Claim Land pursuant to subsection 38(1) and section 39 of the Indian Act;

"Additional Land" means the land to be acquired by the First Nation for the purpose of having the land set apart as Reserve;

"Beneficiary" means the First Nation, XXXXXXXXXX, a "band" within the meaning of the Indian Act, R.S.C. 1985, c. I - 6;

"Canada" means Her Majesty the Queen in Right of Canada, as represented by the Minister of Indian Affairs and Northern Development;

"Canada's Compensation" means the sum to be paid by Canada to the First Nation for the full settlement of the Claim as set out in the Settlement Agreement, which amount includes Negotiation Costs;

"Chief" means the chief of the First Nation from time to time;

"Claim" means all facts, matters and issues arising or resulting, directly or indirectly, from, or set forth in the Specific Claim submitted by the First Nation to Canada and XXXXXXXXXX in XXXXXXXXXX, including all supplemental submissions relating to the claim, which alleged, among other things:

XXXXXXXXXX.

"Claim Land" means the land allegedly surrendered in XXXXXXXXXX and XXXXXXXXXX by the First Nation as legally described in Schedule XXXXXXXXXX of the Settlement Agreement as amended;

"Community Fund Trustees" means those persons appointed as Community Fund Trustees under the Trust Agreement;

"Community Purposes" means those objects and purposes more particularly described in subsection XXXXXXXXXX of the Trust Agreement;

"Compensation" means the total sum to be paid to the First Nation as Canada's Compensation and XXXXXXXXXX Compensation;

"Council" means the duly elected council of the First Nation, which is a "council of the band" as defined in the Indian Act and is comprised the Chief and the Councillors of the First Nation, from time to time;

"Councillor" means a member of the Council;

"Council Resolution" means a decision of the Council consented to by a majority of the Councillors at a duly convened meeting of the Council;

"Court Actions" means all the facts, matters and issues arising or resulting, directly or indirectly, from, or set forth in the court action against XXXXXXXXXX filed in the Supreme Court of XXXXXXXXXX on XXXXXXXXXX (Court file No. XXXXXXXXXX) and the court action against Canada filed in the Federal Court of Canada on XXXXXXXXXX (Court file No. XXXXXXXXXX);

"Crown Land" means land within XXXXXXXXXX that is owned by, or is under the administration and control of Her Majesty the Queen in right of XXXXXXXXXX;

"DIAND" means the Department of Indian Affairs and Northern Development of the Government of Canada or its successor, as established pursuant to the Department of Indian Affairs and Northern Development Act;

"Expenditures Beneficial to the Beneficiary" means amounts paid out of the Trust Property by the Financial Trustees to or for the benefit of the First Nation, for Implementation Purposes or for Community Purposes in a manner consistent with the general principles and specific guidelines contained in the Sections XXXXXXXXXX of the Trust Agreement;

"Financial Trustees" means those persons appointed as Financial Trustees under the Trust Agreement;

"First Nation" means the XXXXXXXXXX, a "band" as defined in the Indian Act, as represented by its Chief and Council;

"Funding Direction" means a written direction from the Council, in respect of Expenditures Beneficial to the Beneficiary for Implementation Purposes or from the Community Fund Trustees, in respect of Expenditures Beneficial to the Beneficiary for Community Purposes, delivered to the Financial Trustees, for a distribution of funds from the Trust Property, which contains the following information:

(a) a description of the Expenditures Beneficial to the Beneficiary, in respect of which the proposed distribution will be applied;

(b) a description of the manner in which the funds will be applied, including when and to whom funds will be paid, the anticipated completion date of any project to which the funds will be applied, the amount and source of other funds which will be applied in respect of the same matter, a description of any charges or security arrangements which may arise in respect of any project to which the funds may be applied;

(c) any assurances as the Financial Trustees may reasonably require in order to satisfy themselves that no member of the Council will be entitled to share in, or acquire any greater benefit from, the funds distributed, than will be the case in respect of any other Member;

(d) a Council Resolution approving any Expenditure Beneficial to the Beneficiary recommended by the Community Fund Trustees that will exceed $XXXXXXXXXX in total cost; and in the event the total cost will exceed $XXXXXXXXXX , an ordinary resolution of the Members approving any Expenditure Beneficial to the Beneficiary recommended by the Community Fund Trustees, passed at any general meeting of Members, provided all Members have been given at least XXXXXXXXXX days notice of the meeting, including a brief explanation of the proposed Expenditure Beneficial to the Beneficiary;

(e) any assurances as the Financial Trustees may reasonably require in order to satisfy themselves that the proposed distribution has been approved by the Members in accordance with their usual and normal decision making procedures and in order to satisfy themselves that funds distributed will be applied by the First Nation in a manner consistent with the proper administration of the First Nation's affairs; and

(f) in the event security arrangements must be implemented in connection with the proposed expenditure, the name of the lawyer to whom funds will be paid in connection with the completion of those security arrangements.

"Implementation Purposes" means those objects and purposes more particularly described in subsection XXXXXXXXXX of the Trust Agreement;

"Income" for any Taxation Year of the Trust shall be the income or loss of the Trust for such year computed in accordance with the provisions of the Act (other than subsections 75(2) and 104(6) thereof) regarding the calculation of income for the purposes of determining the "taxable income" of the Trust; and shall, for greater certainty include taxable capital gains, net of allowable capital losses, and any notional or deemed amounts required to be included in computing the taxable income of the Trust, but shall exclude capital dividends and the non-taxable portion of capital gains;

"Indemnity" means the indemnity to be granted by the First Nation to Canada and XXXXXXXXXX in accordance with XXXXXXXXXX of the Settlement Agreement;

"Indian Act" means the Indian Act, R.S.C. 1985, c.I-5, and the regulations made thereunder, as amended or replaced to the date hereof;

"Land Purchase Committee" means the subcommittee of Council appointed by the Council as described in the Trust Agreement;

"Member" means an individual whose name appears on the "band list", as defined in the Indian Act, of the First Nation, whether or not such individual is ordinarily resident on any Reserve;

"Minister" means the Minister of Indian Affairs and Northern Development or the Minister's duly authorized representative;

"Negotiation Costs" means all costs, expenditures, and obligations, including without limitation, legal fees and travel costs, incurred or undertaken by the First Nation, directly or indirectly in the past, present, or future in relation to the Claim, including without limitation, with respect to the research, preparation, negotiation, and settlement of the Claim and the ratification and execution of the Settlement Agreement;

"XXXXXXXXXX " means Her Majesty the Queen in Right of XXXXXXXXXX, as represented by XXXXXXXXXX;

"XXXXXXXXXX Compensation" means the sum to be paid by XXXXXXXXXX to the First Nation for the full settlement of the Claim as set out in the Settlement Agreement, which amount includes Negotiation Costs;

"Primary Income" means such part of the Income for a Taxation Year of the Trust which arises from property received by the Trust from the First Nation, including the $XXXXXXXXXX received to initially settle the Trust and funds paid at the First Nation's direction by Canada and XXXXXXXXXX to the Financial Trustees pursuant to the Settlement Agreement, or from property substituted for that property, which income is attributed to the Beneficiary by reason of the application of subsection 75(2) such that the Income so attributed is deemed to be income of the Beneficiary and not income of the Trust for purposes of the Act;

"Promissory Note" means a note evidencing indebtedness of the Trust to the Beneficiary, as may be issued from time to time by the Financial Trustees to the Beneficiary, in substantially the form as set forth in Schedule XXXXXXXXXX of the Trust Agreement;

"Ratification Vote" means the vote or votes of the Members to accept or reject the Settlement Agreement, Trust Agreement and Absolute Surrender in accordance with XXXXXXXXXX of the Settlement Agreement;

"Release" means the release of the Claim provided by the First Nation in accordance with XXXXXXXXXX of the Settlement Agreement;

"Reserve" means the XXXXXXXXXX as at the date of the Trust Agreement, any land added to either of these Reserves from time to time, and any other land that may be set apart as "reserve" as defined in the Indian Act for the First Nation from time to time;

"Secondary Income" means the income, other than the Primary Income, of the Trust for a Taxation Year of the Trust;

"Settlement Agreement" means that certain agreement to be entered into among the First Nation, Canada and XXXXXXXXXX , pursuant to which, among other things, the Settlement Funds will be paid to the First Nation;

"Settlement Funds" means the sum of $XXXXXXXXXX dollars to be paid by Canada and XXXXXXXXXX ($XXXXXXXXXX by Canada and $XXXXXXXXXX by XXXXXXXXXX) to the First Nation, as described in the Settlement Agreement;

"Specific Claim" means a claim submitted to Canada under Canada's policy on specific claims set out in the Government of Canada 1982 publication entitled "Outstanding Business - A Native Claims Policy", as amended from time to time;

"Taxation Year of the Trust" means a calendar year unless the fiscal period in respect of which the Trust is required annually to compute its income for Canadian federal income tax purposes changes, in which event the new fiscal period shall become the Taxation Year of the Trust;

"Trust" means the trust named the XXXXXXXXXX to be created pursuant to the Trust Agreement;

"Trust Account" means the account opened by the Trustees in trust for the First Nation in accordance with the Trust Agreement;

"Trust Agreement" means the trust agreement between the First Nation and the Trustees to be approved in the Ratification Vote pursuant to XXXXXXXXXX of the Settlement Agreement, pursuant to which the Trustees will agree to hold and invest the net cash portion of the Settlement Funds received by the First Nation pursuant to the Settlement Agreement for the benefit only of the First Nation;

"Trust Property" means all property which the First Nation or any other person may pay, donate, sell, lend or otherwise transfer, cause to be transferred to, vest or cause to be vested in the Trustees for the benefit of the First Nation, and includes any substituted or additional property held in trust, together with all accretions to any property held in trust and all income derived from any property held in trust, less any amounts which have been paid or disbursed from any property held in trust (whether out of capital or income) in the normal course of the administration the Trust or pursuant to the provisions of the Trust Agreement;

"Trustees" means the Financial Trustees and the Community Fund Trustees from time to time acting under the Trust Agreement; and
"Voting Day" means the day or days set for holding a Ratification Vote.

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

Facts

1. The First Nation is a "band" as that term is defined in subsection 2(1) of the Indian Act.

2. XXXXXXXXXX.

3. The Reserves of the First Nations (XXXXXXXXXX) comprised a total of XXXXXXXXXX acres or XXXXXXXXXX square miles of land.

4. In XXXXXXXXXX and XXXXXXXXXX, the First Nations surrendered certain of these Reserve lands to Canada XXXXXXXXXX . The surrendered land (being the Claim Land) comprised XXXXXXXXXX square miles of land.

5. After the surrender, XXXXXXXXXX, the XXXXXXXXXX remaining Reserve of the First Nation, had a total area of only XXXXXXXXXX square miles, or approximately XXXXXXXXXX% of the area of the original Reserves.

6. XXXXXXXXXX of the original XXXXXXXXXX First Nations were forced to relocate to XXXXXXXXXX as a result of the surrender, XXXXXXXXXX.

7. Canada asserted that the First Nations were "XXXXXXXXXX ", at the time of this surrender in XXXXXXXXXX.

8. XXXXXXXXXX.

9. XXXXXXXXXX.

10. In XXXXXXXXXX, all parties agreed to defer litigation in favour of a process of negotiation, subject to the First Nation's right to continue the lawsuit in the event negotiations are terminated.

11. As stated in the "XXXXXXXXXX " signed at the XXXXXXXXXX on XXXXXXXXXX , the First Nation claimed:

XXXXXXXXXX.

12. In order to determine the financial compensation to which the First Nation might be entitled, the First Nation, Canada and XXXXXXXXXX agreed that Claim valuation and assessment studies of the Claim would be undertaken jointly for the three parties by independent consultants. These studies began in XXXXXXXXXX.

13. The First Nation, Canada and XXXXXXXXXX have agreed that the First Nation is entitled to recovery of the amount of land taken from it in XXXXXXXXXX and XXXXXXXXXX, an area of some XXXXXXXXXX square miles. Although all of the land taken was found in the XXXXXXXXXX, the First Nation has an existing right under Treaty XXXXXXXXXX to select land for Reserve throughout the area of Treaty XXXXXXXXXX.

14. However, the First Nation has indicated an intention to focus on the selection of land in XXXXXXXXXX, which it hopes will provide for the maximum benefit for its existing and future Members.

15. Although about XXXXXXXXXX of the replacement Reserve land has been selected from Crown land, there is minimal suitable, good quality Crown land in the reasonable vicinity of the XXXXXXXXXX. As a result, the First Nation will be required to purchase the overwhelming majority of its land requirements on the open market over an approximate period of XXXXXXXXXX years.

16. With regard to the XXXXXXXXXX acres, more or less, of Crown land that has been selected by the First Nation for Reserve, the First Nation and XXXXXXXXXX have informed the public and obtained feedback during the selection process. In areas having a municipal organization, the First Nation will liaise with the councils of these municipal organizations to ensure that servicing and development issues are addressed.

17. The Claim involves injury and loss to the collective land and economic interests of the First Nation. Individual losses are not addressed either in the Claim negotiations or in the Settlement Agreement, in accordance with federal policy. Accordingly, any financial compensation provided will be applied for community benefit as determined by the Members.

18. XXXXXXXXXX.

19. Canada, XXXXXXXXXX and the First Nation have completed negotiations on the matters arising from and in relation to the Claim and wish to enter into the Settlement Agreement in order to achieve a final settlement of the Claim.

20. Canada has advanced loans to the First Nation in the total amount of $XXXXXXXXXX to help offset the Negotiation Costs. These loans will be repaid to Canada out of the Settlement Funds.

21. The First Nation has incurred Negotiation Costs inclusive of the above referenced loan advances from Canada in the amount of $XXXXXXXXXX for the negotiation of the settlement of the Claim. As a result, after deduction of the Negotiation Costs, the net Settlement Funds will total $XXXXXXXXXX. In addition, the value of the lands to be transferred from XXXXXXXXXX to XXXXXXXXXX being $XXXXXXXXXX will be deducted from the cash portion of the Settlement Funds to be paid by XXXXXXXXXX to XXXXXXXXXX. As a result, after the deduction of the Negotiation Costs and the value of the lands being transferred from XXXXXXXXXX to XXXXXXXXXX, the net cash portion of the Settlement Funds will be $XXXXXXXXXX.

22. The Council has governmental authority with respect to Members and the geographic area of the First Nation Reserve and provides services in respect of, inter alia, housing, including garbage service, water and sewage services, and road maintenance, education, social services, financial management and economic development, either directly or indirectly, to the Members. The community profile of the First Nation contains details of the governmental authority and community services which the First Nation provides.

Proposed Transactions

23. After the Settlement Agreement has been ratified by the Members of the First Nation, the First Nation, Canada and XXXXXXXXXX will execute the Settlement Agreement.

24. After the Trust Agreement has been approved by Council Resolution and ratified by the Members of the First Nation, the First Nation and the Trustees will execute the Trust Agreement. The First Nation, in its capacity as settlor of the Trust, will contribute the sum of $XXXXXXXXXX to the Trustees to settle the Trust. The First Nation will be the sole beneficiary of the Trust. Under the terms of the Trust Agreement, the Trust will be a non-discretionary inter vivos trust.

25. Pursuant to the Settlement Agreement, the First Nation will irrevocably authorize and direct Canada and XXXXXXXXXX to pay the net cash portion of the Settlement Funds (being $XXXXXXXXXX) to the Trust to be administered for the benefit of the First Nation (in its capacity as sole beneficiary of the Trust).

26. The First Nation will have the right to replacement Reserve land in the amount of XXXXXXXXXX acres of land and the First Nation will forever release, remise and discharge each of Canada and XXXXXXXXXX from all claims and costs related to the Claim settled as set out in the Release at XXXXXXXXXX of the Settlement Agreement. The First Nation also will irrevocably authorize and direct Canada:

(a) to set-off and deduct the amount of $XXXXXXXXXX from the amount of the Compensation to be paid by Canada to the First Nation as a contribution by Canada for the Negotiation Costs which contribution and deduction shall be repayment in full of all loans advanced to the First Nation by Canada to offset the Negotiation Costs of the First Nation over the course of the negotiations; and

(b) to pay to the First Nation from the amount of the Compensation to be paid by Canada to the First Nation, the balance of its Negotiation Costs in the amount of $XXXXXXXXXX within XXXXXXXXXX days of the of the date of notice from the First Nation that the Trust Account has been opened, as provided in the Settlement Agreement.

27. More particularly, in consideration of the Absolute Surrender, the Release, the Indemnity and the mutual promises and covenants set out in the Settlement Agreement, Canada and XXXXXXXXXX will each agree that the First Nation is entitled:

(a) to replacement Reserve equal to the area of the Claim Land in the amount of XXXXXXXXXX acres of land; and

(b) to the Compensation in the total amount of $XXXXXXXXXX for:

i) its loss of opportunity to use and benefit from the Claim Land, the amount of which has been determined based on applicable legal principles over the course of negotiations which commenced in XXXXXXXXXX;

ii) its loss of community infrastructure arising from its dislocation from the Claim Land and relocation to XXXXXXXXXX;

iii) its costs to be incurred in and related to the purchase of the replacement Reserve land and the setting apart of that amount of land as Reserve; and

iv) its administrative, technical, professional and legal costs incurred in the research, preparation, submission, negotiation and settlement of its Claim.

28. Administration of the Trust Property will be the sole responsibility of the Financial Trustees, who shall hold the Trust Property in trust for the use and benefit of the First Nation, upon the trusts and subject to the terms and conditions of the Trust Agreement. The Financial Trustees agree to obtain professional financial management services to assist them in performing their duties under the Trust Agreement. The Community Fund Trustees shall have no responsibility under the Trust Agreement to administer the Trust Property. The sole responsibility of the Community Fund Trustees shall be to identify Expenditures Beneficial to the Beneficiary for Community Purposes, to provide the Financial Trustees with Funding Directions and to provide the report contemplated in subsection XXXXXXXXXX of the Trust Agreement.

29. The guidelines for determining what constitutes an Expenditure Beneficial to the Beneficiary for Community Purposes are as follows:

General Application of the Trust Property

The Financial Trustees have agreed to hold the Trust Property on the terms set out in this Agreement for the benefit of the First Nation and, without limiting the generality of the foregoing, to assist the First Nation in the implementation of the Settlement Agreement by:

(a) acquiring land to be registered in the name of the Beneficiary or any agent, trustee or legal representative of the Beneficiary;

(b) discharging expenses associated with the purchase of land and other implementation of the Settlement Agreement; and

(c) advancing the interests of and quality of life of the First Nation and its Members through the preservation, enhancement and application of Trust Property.

Specific Guidelines for Application of Trust Property

Expenditures Beneficial to the Beneficiary will enhance and supplement funding and programs provided by Canada, XXXXXXXXXX or the First Nation wherever possible and also preserve, protect and advance the treaty and aboriginal rights of the First Nation and its Members so as to provide benefits from the Trust for all Members whether resident on or off a Reserve. Without limitation of the foregoing, these expenditures may be applied by the First Nation for the implementation purposes and community purposes as follows:

(a) for implementation purposes, by the payment of funds out of the Trust Property to:

(i) permit the First Nation to acquire land for social, economic development, cultural or other purposes of interest to the First Nation, including related costs;

(ii) pay the costs of inspection, appraisal, capital purchase, purchase transaction, holding, tax adjustment and incidental related costs, including agents, representatives or trustees retained to purchase or hold title to land on behalf of the First Nation; and

(iii) implement the Settlement Agreement, including required staff, equipment, travel or other administration costs pertaining to the purchase of land, monitoring and Reserve creation process.

(b) for community purposes, by payment of funds out of the Trust Property to:

(i) provide supplementary or enhanced health care related services or facilities to Members;

(ii) enhance and promote educational opportunities, including but not limited to providing funding for the First Nation to enable it to build, establish and operate schools or training facilities for Members, in providing scholarships and bursary funds for Members and recognizing achievements by Members in educational endeavours;
(iii) provide support and assistance to address the special needs of the elders of the First Nation, their cultural contributions to the community and Members and role as keepers of knowledge;

(iv) provide assistance to the First Nation in its community development and improvements initiatives, including the construction and maintenance of roads, bridges, ditches, water-courses, fences, buildings or permanent improvements, works or infrastructure on any Reserve; the purchase of industrial or manufacturing equipment or machinery to be owned by the First Nation for community purposes; and the promotion, establishment or enhancement of recreational and cultural facilities owned by the First Nation;

(v) promote the preservation, study and learning of the language and cultural heritage of the First Nation;

(vi) encourage community activities, including the annual XXXXXXXXXX , pow-wow and community gatherings;

(vii) acquire, establish, or build a credit union or a bank or a trust company to be owned by the Beneficiary;

(viii) provide incentive funding to a Member to assist that Member in acquiring or otherwise financing housing, or to provide funding to the First Nation if it is providing housing to Members;

(ix) promote or establish a business or commercial operation owned by the First Nation and/or a Member or Members;

(x) protect, preserve and advance the aboriginal and Treaty rights of the First Nation and its Members;

(xi) pay the reasonable fees, honoraria (as approved in accordance with Section XXXXXXXXXX of the Trust Agreement) and expenses of the Financial Trustees and the Community Fund Trustees in connection with the administration and operation of the Trust, including any form of education which will assist them in their duties as Financial Trustees or Community Fund Trustees, such as financial and investment training; and
(xii) pay the reasonable costs and expenses of professional management, accounting, legal and other services necessarily required in the administration of the Trust Property and protection of the Trust Property;

Community purposes also includes any activity, undertaking, project or initiative which the Community Fund Trustees recommend or approve as consistent with the general guidelines for community purposes as provided in the Trust Agreement, provided that, for greater certainty:

(A) the nature of a certain activity, undertaking, project or initiative considered an Expenditure Beneficial to the Beneficiary for community purposes may, as the circumstances dictate, provide for Expenditures Beneficial to the Beneficiary of benefit to primarily or only Members ordinarily resident on Reserve or primarily or only Members ordinarily resident off Reserve from time to time;

(B) all payments in respect of Expenditures Beneficial to the Beneficiary for Implementation Purposes or for Community Purposes as provided shall be made only to the First Nation and shall not be made directly to any Member; and

(C) no Trust Property shall at any time be used by the First Nation, directly or indirectly, to pay the debt or operational deficit of the First Nation or to make any per capita distribution to the Members of the First Nation.

30. The legal ownership of the Trust Property and the right to conduct the business of the Trust (subject to the limitations contained in the Trust Agreement) shall be vested exclusively in the Financial Trustees or such other person or persons as the Financial Trustees may determine, and the Members shall have no interest in the Trust Property, and, except as provided in section XXXXXXXXXX of the Trust Agreement wherein the Members may vote to terminate the Trust, they shall have no right to compel or call for any partition or division or distribution of the Trust Property. The First Nation, acting through its Council, shall be the sole entity entitled to enforce the obligations assumed by the Trustees under the Trust Agreement.

31. The office of the Trust will be located at XXXXXXXXXX or at such other place or places in Canada on any Reserve, as the Trustees may from time to time designate.

32. The Council, for Implementation Purposes, and the Community Fund Trustees, for Community Purposes, may cause the Financial Trustees to distribute Trust Property to the First Nation at the times and in the amounts as the Council or the Community Fund Trustees, as the case may be, consider appropriate in connection with Expenditures Beneficial to the Beneficiary for Implementation Purposes or for Community Purposes, respectively, by delivering a Funding Direction to the Financial Trustees. Upon receipt of a Funding Direction, the Financial Trustees shall pay or apply so much of the Trust Property, as is specified in the Funding Direction, to or for the benefit of the First Nation in connection with Expenditures Beneficial to the Beneficiary. Subject to the provisions of the Trust Agreement permitting anticipatory distributions from the Trust Property, such payments shall be made firstly out of Secondary Income of the Trust for the particular Taxation Year of the Trust, secondly, by repayment of any Promissory Notes outstanding, and thirdly, out of Primary Income of the Trust for the particular Taxation Year of the Trust or out of the capital of the Trust Property, as the Financial Trustees shall determine. Notwithstanding the foregoing, the Financial Trustees may, prior to the end of a Taxation Year of the Trust, make anticipatory distributions from the Trust Property. Accounts for that Taxation Year of the Trust, prepared in accordance with section XXXXXXXXXX of the Trust Agreement, shall reflect the proper allocation of any such anticipatory distributions among Secondary Income, repayment of Promissory Notes, Primary Income and the capital of the Trust Property. Except pursuant to a Funding Direction from the Community Fund Trustees in accordance with clause XXXXXXXXXX of the Trust Agreement, the Trustees shall not distribute Primary Income to the First Nation.

33. No distribution of Trust Property, other than distributions of Secondary Income and payment on account of Promissory Notes, shall be made which would, if made, reduce the net realizable value of the Trust Property, other than land, less outstanding Promissory Notes and other liabilities, below $XXXXXXXXXX. Any income for trust purposes which forms the basis for determining Primary Income not distributed in the Taxation Year of the Trust in which it arises, or within XXXXXXXXXX days of the end of that year, shall be added to the capital of the Trust Property.

34. All of the Secondary Income earned in a particular Taxation Year of the Trust that has not been paid to the First Nation earlier in the Taxation Year of the Trust, shall be payable to the First Nation on the XXXXXXXXXX of that year. The First Nation shall have the right to enforce the payment of the balance of the Secondary Income earned in that Taxation Year of the Trust on that day and thereafter until such amount has been distributed to the First Nation. For greater certainty, the Secondary Income shall not be added to the capital of the Trust, but shall be paid to the First Nation in the manner provided in clause XXXXXXXXXX of the Trust Agreement.

35. The Financial Trustees shall calculate the Secondary Income for a particular Taxation Year of the Trust as soon as practicable following the end of that Taxation Year of the Trust. The Financial Trustees will distribute such income to the First Nation within XXXXXXXXXX months of the end of the Taxation Year of the Trust in which such income was earned by issuing a Promissory Note to the First Nation. Each Promissory Note shall be issued as absolute payment of the Financial Trustees' obligation to pay such balance of the Secondary Income for a Taxation Year of the Trust to the First Nation. Each Promissory Note will be payable on demand and will bear no interest.

36. In addition to amounts otherwise payable to the First Nation in accordance with the Trust Agreement, the Financial Trustees shall pay or transfer amounts from the Trust Property required by the First Nation for Implementation Purposes to pay costs of associated implementation and to permit the First Nation to purchase or otherwise acquire land under the Trust Agreement.

37. Trustees shall make payments to the First Nation for the capital cost of the purchase or other acquisition of land, including the purchase price, options to buy land, rights of first refusal, initial or lump sum tax adjustment payments, legal services for purchase and incidental closing costs, in support of which the chairperson or the subcommittee of the Council responsible for approval of land purchases, or the manager of the First Nation's land purchase program, shall provide the Financial Trustees with:

(a) a written explanation of the amounts which must be expended in order to purchase or otherwise acquire land and complete the acquisition, a copy of an executed offer to purchase or other agreement to acquire the land or interest in the land, which has been made conditional upon approval of funding or other financing for that purchase or acquisition;

(b) the identity of the solicitor for the First Nation retained to complete the purchase of land on its behalf, to whom the Financial Trustees shall send the funds required to complete the purchase or other acquisition; and

(c) a resolution of the land acquisition subcommittee of Council approving the terms of purchase or other acquisition, a copy of the accepted offer to purchase, option or other form of agreement and the legal and municipal address of the land to be acquired.

The First Nation shall return any funds received by it for land purchase or acquisition not expended after the closing or failure to close of the sale transaction on a timely basis.

38. The Financial Trustees shall have no obligation or duty to inquire into the suitability of any land which the First Nation proposes to acquire and shall have no obligation or duty to determine if the amount to be paid for the land is reasonable.

39. There shall at all times be XXXXXXXXXX Community Fund Trustees appointed to act under the Trust Agreement. If for any reason there are only XXXXXXXXXX Community Fund Trustees appointed to act at any time, the Community Fund Trustees shall continue to act in accordance with the provisions of the Trust Agreement and Council shall forthwith appoint a replacement Community Fund Trustee. If for any reason, there are XXXXXXXXXX or less Community Fund Trustees appointed to act at any time, the Community Fund Trustees shall be precluded from recommending or approving Expenditures Beneficial to the Beneficiary until there are at least XXXXXXXXXX Community Fund Trustees appointed by Council to act.

40. Except for the period that the Initial Trustees shall be in office, there shall at all times be XXXXXXXXXX Financial Trustees appointed to act under the Trust Agreement. If for any reason, there are only XXXXXXXXXX or XXXXXXXXXX Financial Trustees appointed to act at any time, the Financial Trustees shall continue to act in accordance with the provisions of the Trust Agreement and Council shall forthwith appoint replacement Financial Trustees. If for any reason, there are XXXXXXXXXX or less Financial Trustees appointed to act at any time, the Financial Trustees shall be precluded from making distributions of Trust Property to or for the Beneficiary in respect of Expenditures Beneficial to the Beneficiary, but shall preserve and protect the Trust Property until there are at least XXXXXXXXXX Financial Trustees appointed by Council to act.

41. At all times, at least XXXXXXXXXX Community Fund Trustees and at least XXXXXXXXXX Financial Trustees must be Members, of which at least XXXXXXXXXX Community Fund Trustees and at least XXXXXXXXXX Financial Trustees must reside on Reserve and at least one Financial Trustee and at least one Community Fund Trustee must ordinarily reside off Reserve. At least one Financial Trustee shall be a chartered accountant practicing with the firm responsible for The First Nation's accounting matters and at least one Financial Trustee must be either a corporate trustee, lawyer, engineer, school principal or other person, who is a member of a professional body which regulates his or her employment or business activities. Except for the period that the Initial Trustees shall be in office, no Financial Trustee and no Community Fund Trustee may be a member of Council and no person may be both a Financial Trustee and a Community Fund Trustee at the same time.

42. All monies paid to the First Nation or deposited to its Trust Account under XXXXXXXXXX of the Settlement Agreement are not "Indian moneys" as defined in the Indian Act and accordingly, the provisions of the Indian Act pertaining to the management of "Indian moneys" as defined in that act do not apply to the Compensation paid to the First Nation.

Purposes of the Proposed Transactions

43. The purposes of the Proposed Transactions are to provide for the settlement of the Claim and to establish the Trust for the benefit of the First Nation as 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 purpose of the proposed transactions and provided further that the proposed transactions are carried out as described above, our rulings are 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). Accordingly, no tax will be payable under Part I of the Act by the First Nation on the Primary Income or Secondary Income attributable or distributed to the First Nation from the Trust or on any gain arising from the transfer of property to the Trust.

B. The Trust will be an "inter vivos trust" as defined in subsection 108(1).

C. The Trust will be a "personal trust" as defined in subsection 248(1).

D. As a result of paragraph (g) of the definition of "trust" in subsection 108(1), none of subsections 104(4), (5) or (5.2) will apply to cause a deemed disposition of the Trust Property in any Taxation Year of the Trust.

E. Subsection 75(2) will apply to deem any Primary Income of the Trust to be the income or loss, or taxable capital gain and allowable capital loss, as the case may be, of the First Nation. As a result, the Primary Income of the Trust will be excluded from the computation of the Trust's income for that taxation year.

F. The Secondary Income will be considered to be payable to the First Nation in the Taxation Year of the Trust in which it is earned and may be deducted in computing the income of the Trust for that taxation year pursuant to paragraph 104(6)(b).

G. Subject to subsections 107(2.001) and (4.1), 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) will apply.

H. The First Nation will not be a designated beneficiary of the Trust as defined in section 210. Accordingly, the Trust will not be required to pay tax under Part XII.2 provided that the Trust complies with subsection 210.3(1) and no designated beneficiary as defined in section 210 is appointed as a beneficiary of the Trust.

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.

These 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 Canada Revenue Agency provided that the proposed transactions are completed within six months of the date of this letter.

Yours truly,

XXXXXXXXXX
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch