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 2005-012214
XXXXXXXXXX, 2005
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX (the "First Nation")
We are writing in response to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the First Nation. We also acknowledge the additional information sent to us by facsimile on XXXXXXXXXX and the information provided during 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; and
iv. before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired.
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 a "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. The XXXXXXXXXX reserves (collectively the "Reserve"), encompassing approximately XXXXXXXXXX, are comprised of: XXXXXXXXXX.
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 has 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 First Nation has 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 the 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 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.
14. 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.
15. 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.
16. 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.
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. XXXXXXXXXX.
19. Under a Health Services Transfer Agreement, signed with Health Canada on XXXXXXXXXX, the First Nation manages alcohol and drug abuse treatment programs.
20. The First Nation and XXXXXXXXXX jointly administer a waste treatment system, which is located on the Reserve.
21. 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.
22. XXXXXXXXXX.
23. XXXXXXXXXX.
Proposed Transactions
24. The First Nation and the Corporation (or a wholly-owned subsidiary of the Corporation, as the case may be) will enter into a limited partnership agreement forming a limited partnership to be known as XXXXXXXXXX (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%. The First Nation will transfer its XXXXXXXXXX to the LP as part of its capital contribution.
25. A new corporation to be known as XXXXXXXXXX (the "General Partner") will be incorporated to act as the general partner of the LP and will hold a nominal 1-unit interest in the LP.
26. The First Nation will incorporate a new company, to be known as XXXXXXXXXX ("FN Corp") to hold its shares in the General Partner.
27. The shares of the General Partner, each of which entitles the holder to one vote, will be held by FN Corp 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.
28. 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. However, in the course of obtaining outside financing for its capital contributions, the First Nation will obtain a loan (the "Loan") from FN Corp in an amount of not less than $XXXXXXXXXX, funds which FN Corp will have borrowed from the Corporation (or its wholly-owned subsidiary, as the case may be). The loan to FN Corp from the Corporation (or its wholly-owned subsidiary, as the case may be) and the Loan will bear interest at a rate equal to or in excess of the commercial market rate applicable for loans bearing similar terms and conditions. The interest rate will be determined at the time the proposed transactions are implemented.
29. The LP will carry on the business of XXXXXXXXXX.
30. The income and losses of the LP, for both accounting and income tax purposes, will be allocated to 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.
Purpose of the Proposed Transactions
The purpose of the proposed transactions is to generate income to support the governance, public works, infrastructure and development of the First Nation.
Ruling Given
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, we rule as follows:
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 Part I tax will be payable by the First Nation on any amounts included in its income as a result of the transactions described above, which, for greater certainty, may include income allocated from the LP, income or capital gains realized from the disposition of the XXXXXXXXXX, and amounts included in the First Nation's income pursuant to subsection 15(2) of the Act as a result of the Loan.
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
Policy and Planning Branch
??
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2005
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2005