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: Whether paragraph 149(1)(c) will apply to exempt the business income earned by a First Nation from its limited partnership interest.
Position: Yes.
Reasons: The First Nation can be considered a public body performing a function of government in Canada within the meaning of paragraph 149(1)(c).
XXXXXXXXXX 2004-008906
XXXXXXXXXX, 2004
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX (the "First Nation") XXXXXXXXXX
We are writing in response your letter dated 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 (XXXXXXXXXX).
To the best of your knowledge and that of the First Nation, none of the issues involved in the ruling request is:
i. in an earlier return of the First Nation or a related person;
ii. being considered by a tax services office or a tax centre in connection with a tax return already filed by the First Nation or a related person;
iii. under objection by the First Nation 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; and
v. the subject of a ruling previously issued by the Directorate to the First Nation or a related person.
Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended (the "Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definitions unless otherwise indicated.
Our understanding of the facts, the proposed transactions and the purpose of the proposed transactions is as follows:
Facts
1. The First Nation is an "Indian band" within the meaning of the Indian Act.
2. The First Nation has XXXXXXXXXX reserves, within the meaning of the Indian Act, located at XXXXXXXXXX (Hereinafter the XXXXXXXXXX reserves are referred to collectively as the "Reserve").
3. The First Nation is served by the XXXXXXXXXX Tax Services Office and files its returns with the XXXXXXXXXX Tax Centre.
4. The First Nation is comprised of approximately XXXXXXXXXX members (the "Members"), approximately XXXXXXXXXX of which live on the Reserve.
5. The First Nation's Chief and Council are democratically elected under band custom.
6. The organization of the First Nation is divided into 4 main departments consisting of Health, Education, Natural Resources, and Administration and Treaty.
7. The First Nation has passed a by-law under section 82 of the former Indian Act (R.S.C. 1952) that provides for the XXXXXXXXXX.
8. The First Nation has passed XXXXXXXXXX bylaws under section XXXXXXXXXX of the Indian Act which provide for, among other things:
XXXXXXXXXX.
9. In XXXXXXXXXX, the First Nation established comprehensive financial management policies including policies related to conflict of interest rules, the roles of Chief and Council, and financial control systems.
10. The First Nation has entered into a framework agreement to negotiate a treaty with the governments of Canada and XXXXXXXXXX.
11. The First Nation owns and maintains an elementary school, which also includes a nursery, that is run by an education board whose members include XXXXXXXXXX Members and a First Nation councilor.
12. The First Nation also owns and maintains the following facilities on the Reserve:
a. administration offices;
b. a full-service medical clinic, which has XXXXXXXXXX doctors on staff and provides community health, home care nursing, social services and community development;
c. a community centre that houses facilities for basketball, volleyball, indoor soccer and a variety of other athletic activities, and that is also used by Members as a meeting place; and
d. a dental clinic that provides dental care to Members.
13. The First Nation and XXXXXXXXXX jointly administer a waste treatment system, which is located on the Reserve.
14. XXXXXXXXXX.
15. The First Nation and XXXXXXXXXX are in the process of developing a joint emergency preparedness plan to deal with such things as natural disasters, violent incidents, terrorist acts, etc.
16. The First Nation administers a number of programs through funding provided by Indian and Northern Affairs Canada ("INAC"), including programs relating to:
a. elementary school education;
b. post secondary education;
c. land trust services;
d. community infrastructure;
e. social housing;
f. social assistance;
g. child and family services; and
h. youth outreach.
17. Under a Health Services Transfer Agreement, signed with Health Canada on XXXXXXXXXX, the First Nation manages health services in respect of the following:
a. child and family services;
b. chronic diseases;
c. communicable diseases;
d. environmental health;
e. non-insured health benefits;
f. victim services;
g. XXXXXXXXXX ; and
h. home and community care
18. Under a Health Services Transfer Agreement, signed with Health Canada on XXXXXXXXXX, the First Nation manages alcohol and drug abuse treatment.
19. The First Nation has developed a community plan which addresses the following:
a. community development;
b. day care and infant development;
c. a family resource centre;
d. social development matters;
e. teen and youth centres; and
f. youth employment and outdoor recreation programs.
20. The First Nation has created a community health plan, which provides a framework and rules for:
a. the governance and structure of a health board;
b. the management of the health structure and system; and
c. the delivery of health care including but not limited to:
? community health;
? XXXXXXXXXX;
? mental health;
? dental health;
? home and community care;
? drug and alcohol programs;
? immunization;
? the reporting and control of communicable diseases; and
? environmental health matters.
21. The First Nation has developed a home care and community care plan, which governs the following:
a. assessment of home and community care needs;
b. communication with elders;
c. assessment of statistical information;
d. client assessment;
e. case management;
f. home care nursing services;
g. home support services;
h. respite care;
i. medical supplies and equipment;
j. the Elders Activity Centre; and
k. therapeutic and specialist services
22. XXXXXXXXXX.
23. XXXXXXXXXX.
Proposed Transactions
24. The First Nation and the Corporation (or a wholly-owned subsidiary of the Corporation) will enter into a limited partnership agreement forming a limited partnership (the "LP") pursuant to the Partnership Act (XXXXXXXXXX ). Each will contribute to the capital of the LP and will be awarded a corresponding portion of LP units; however, the First Nation's capital contribution will not exceed XXXXXXXXXX%.
25. A new corporation will be incorporated to act as the general partner of the LP (the "General Partner") and will hold a nominal interest in the LP, i.e., 1 LP unit.
26. The shares of the General Partner, each of which entitles the holder to one vote, will be held by the First Nation and the Corporation (or its wholly-owned subsidiary, as the case may be) in proportion to the number of LP units held by each of them.
27. The First Nation and the Corporation (or its wholly-owned subsidiary, as the case may be) will be responsible for their own financing in regard to funding their capital contributions to the LP.
28. The LP will carry on the business of XXXXXXXXXX.
29. The income and losses of the LP, for both accounting and income tax purposes, will be allocated to the First Nation and the Corporation in proportion to the number of LP units held by each of them.
Purpose of the Proposed Transaction
The purpose of the proposed transactions is to generate income to support the governance, public works, infrastructure and development of the First Nation.
Ruling
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 to it by the LP as described in 29 above.
The above advance income tax ruling, which is based on the Act in its 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 IC 70-6R5, dated May 17, 2002, and is binding on the Canada Revenue Agency provided the proposed transactions are implemented before XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
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