Principal Issues: (A) Does the First Nation qualify as a public body performing a function of government for purposes of paragraph 149(1)(c)? (B) Will subsection 75(2) apply to the particular trust income in the circumstance? (C) Whether income of the trust that is not subject to the provisions of 75(2) will be considered payable to the First Nation and thus deductible pursuant to subsection 104(6)? (D) Will the per capita distributions by the First Nation to its members be considered income from a source within the meaning of paragraph 3(a) of the Act? (E) Are distributions of the trust governed by section 107(2)?
Position: (A) yes (B) yes (C) yes (D) no (E) yes, subject to subsections 107(2.001), (2.002) and (4) and (5)
Reasons: (A) The First Nations provides and administers a fairly extensive list of public works, social services and infrastructure programs. It has negotiated Health Agreements with the Crown and has passed bylaws within its community. (B) The First Nation will be the settlor of the particular trust, directing the settlement payments to the trust on behalf of the First Nation. The First Nation, including all its members, is the sole beneficiary and on termination of the trust, all of the trust property will be transferred to the First Nation. (C) To the extent income earned exceeds income realized; the excess shall be irrevocably payable to the First Nation and will be evidenced by a demand promissory note. (D) Consistent with a previous position, the per capita distributions to the First Nation members would not be considered income from a source within the meaning of paragraph 3(a) of the Act. (E) The particular trust will qualify as a personal trust since First Nation will be the settlor and the interest will not be acquired for any consideration.
December 4, 2006