2008 Ruling 2008-0282491R3 - XXXXXXXXXX Claim Trust; 149(1)(c)

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 XXXXXXXXXX is a public body performing a function of government. 2.Whether the Primary Income of the trust will be attributed back to the First Nation by 75(2). 3.Whether the Secondary Income is payable in the year to a beneficiary for purposes of 104(6)(b) such that the income will not be taxed in the trust.

Position: 1.Yes. 2. Yes. 3.Yes, in these particular circumstances.

Reasons: 1.The First Nation is democratically organized and performs several functions of government, including providing municipal-type services and negotiating and implementing agreements with the provincial and federal governments. 2.Wording of 75(2) of the Act. The First Nation is the settlor and the beneficiary. 3.Previous similar rulings given; however, note wording changed to "as soon as practicable" for issuing the promissory notes - the right is fixed, and only practical matters of computation delay actual receipt of the promissory note.

XXXXXXXXXX 									2008-028249

XXXXXXXXXX , 2008

Dear XXXXXXXXXX :

Re: Advance Income Tax Ruling
XXXXXXXXXX (the "First Nation")
XXXXXXXXXX (the "Trust")

This is in reply to your letter of XXXXXXXXXX , in which you requested an advance income tax ruling on behalf of the above-named taxpayers. We also acknowledge your additional submissions of XXXXXXXXXX , and the additional information provided to us XXXXXXXXXX .

We note your reference to advance income tax rulings 2004-009549 (the "2004 Ruling") and 2006-016792 (the "2006 Ruling"), as well as supplemental advance income tax ruling 2006-00211351 (the "First Supplemental 2006 Ruling") and 2007-024048 (the "Second Supplemental 2006 Ruling"), which were previously issued by this Directorate in respect of the First Nation regarding other transactions.

We understand that to the best of your knowledge and that of the taxpayers, none of the issues involved in the ruling request is:

(i) in an earlier return of the taxpayers or related persons,
(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayers or related persons,
(iii) under objection by the taxpayers or related persons,
(iv) before the courts or the subject of a judgment of which the time limit for appeal to a higher court has not expired, or
(v) the subject of a ruling previously considered by the Directorate for the taxpayers or related persons, except as referred to above.

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.

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

DEFINITIONS

In this letter, the following terms have the following meanings:

(a) "Beneficiary" means the First Nation;

(b) "Canada" means Her Majesty the Queen in Right of Canada, and includes all departments of the Government of Canada;

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

(d) "Community Approval Process" means the process by which the "electors" of the First Nation, within the meaning of the Indian Act and the Indian Referendum Regulations, have:

XXXXXXXXXX

(e) "Community Fund Trustees" initially means the members of Council on the date of the establishment of the Trust and, thereafter, any individual elected or appointed to fill a vacancy in the office of the Community Fund Trustees in accordance with the provisions of Article XXXXXXXXXX of the Trust Agreement, and a "Community Fund Trustee" means any one of them;

(f) "Community Purposes" means those objects and purposes more particularly described in paragraph XXXXXXXXXX of the Trust Agreement;

(g) "Council" means that body comprised of the Chief and the Councillors of the First Nation, from time to time;

(h) "Council Resolution" means a resolution passed by a majority decision of the Council at a duly convened meeting of the Council;

(i) "Councillors" means the elected members of the Council, and "Councillor" means any one of them;

(j) "Expenditures Beneficial to the Beneficiary" means applications of the Trust Property by the Financial Trustees to or for the benefit of the First Nation for Community Purposes in accordance with the general principles, specific guidelines and restrictions contained in Article XXXXXXXXXX of the Trust Agreement, which have been authorized as follows:

a. in the case of proposed applications of the Trust Property for amounts less than XXXXXXXXXX dollars, by approval of the Community Fund Trustees obtained by Ordinary Resolution;

b. in the case of proposed applications of the Trust Property for amounts of XXXXXXXXXX dollars or more, but less than XXXXXXXXXX dollars:

(i) by recommendation of the Community Fund Trustees made by Ordinary Resolution; and
(ii) by Council's approval of such recommendation obtained by Council Resolution; and

c. in the case of proposed applications of the Trust Property for amounts of XXXXXXXXXX dollars or more:

(i) by recommendation of the Community Fund Trustees made by Ordinary Resolution;
(ii) by Council's approval of such recommendation obtained by Council Resolution; and
(iii) by the Members' approval of such recommendation made by Ordinary Resolution;

(k) "Financial Trustees" initially means the members of Council on the date of the establishment of the Trust and, thereafter, any individual appointed or elected to fill a vacancy in the office of the Financial Trustees in accordance with the provisions of Article XXXXXXXXXX of the Trust Agreement, and a "Financial Trustee" means any one of them;

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

(m) "Funding Direction" means a written direction from the Community Fund Trustees, in respect of Expenditures Beneficial to the Beneficiary delivered to the Financial Trustees, for a distribution of funds from the Trust Property, which comprises the following information and documentation:

a. a written description providing sufficient details, to the satisfaction of the Financial Trustees, of the Expenditures Beneficial to the Beneficiary, in respect of which the proposed distribution will be applied;

b. a written description providing sufficient details, to the satisfaction of the Financial Trustees, 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. in the case of proposed applications of the Trust Property for amounts less than XXXXXXXXXX dollars, a copy of the Ordinary Resolution by the Community Fund Trustees approving the Expenditures Beneficial to the Beneficiary;

d. in the case of proposed applications of the Trust Property for amounts of XXXXXXXXXX dollars or more, but less than XXXXXXXXXX dollars;

(i) a copy of the Ordinary Resolution by the Community Fund Trustees recommending the Expenditures Beneficial to the Beneficiary for Community Purposes; and
(ii) a copy of the Council Resolution approving the Expenditures Beneficial to the Beneficiary for Community Purposes as recommended by the Community Fund Trustees;

e. in the case of proposed applications of the Trust Property for amounts of XXXXXXXXXX dollars or more:

(i) a copy of the Ordinary Resolution by the Community Fund Trustees recommending the Expenditures Beneficial to the Beneficiary for Community Purposes;
(ii) a copy of the Council Resolution approving the Expenditures Beneficial to the Beneficiary for Community Purposes as recommended by the Community Fund Trustees; and
(iii) a copy of the Ordinary Resolution of the Members approving any Expenditure Beneficial to the Beneficiary for Community Purposes as recommended by the Community Fund Trustees and approved by the Council; and

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

(n) "Income" means, for each Taxation Year of the Trust, 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;

(o) "Indian Act" means the Indian Act, R.S.C. 1985, c. I-5, and the regulations thereto, both as amended from time to time, and any legislation enacted in substitution for the Indian Act and its regulations;

(p) "Indian Referendum Regulations" means the Indian Referendum Regulations, C.R.C. 1978, c.957, as amended SOR/94-369 and SOR/2000-392 as amended or replaced from time to time;

(q) "Initial Trustees" means the Financial Trustees and the Community Fund Trustees first named at the beginning of the Trust Agreement, and "Initial Trustee" means any one of them;

(r) "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 resident on the Reserve, and "Members" means more than one Member;

(s) "Ordinary Resolution" means:

a. in respect of Community Fund Trustees, a resolution passed by at least XXXXXXXXXX Community Fund Trustees who voted in respect of that resolution at a duly convened meeting of Community Fund Trustees or a written resolution signed by all the Community Fund Trustees entitled to vote on the resolution;

b. in respect of Financial Trustees, a resolution passed by at least XXXXXXXXXX Financial Trustees who voted in respect of that resolution at a duly convened meeting of Financial Trustees or a written resolution signed by all the Financial Trustees entitled to vote on the resolution; and

c. in respect of Members, a resolution passed by a majority of the votes cast by Members eligible to vote in respect of the resolution at a duly convened general meeting of Members;

(t) "Primary Income for a Taxation Year of the Trust" 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 sum of XXXXXXXXXX dollars received by the Initial Trustees to initially settle the Trust and the amounts deposited by Canada, at the direction of the First Nation, in the Trust pursuant to the Settlement Agreement, or from any property substituted therefor, which is attributed to the First Nation pursuant to the application of subsection 75(2) or any other provision of the Act such that the Income so attributed is deemed to be income of the First Nation and not income of the Trust for the purposes of the Act;

(u) "Promissory Note" means a demand promissory note issued by the Financial Trustees and delivered to the First Nation as absolute payment, without interest, of the unpaid amount of Secondary Income for a Taxation Year of the Trust, and "Promissory Notes" means more than one Promissory Note;

(v) "Reserve" means the XXXXXXXXXX Indian Reserve XXXXXXXXXX , any land added to that Reserve from time to time, and any other land that has been or may be set apart as a "reserve" as defined in the Indian Act for the use and benefit of the First Nation from time to time;

(w) "Secondary Income for a Taxation Year of the Trust" means Income for a Taxation Year of the Trust other than Primary Income for a Taxation Year of the Trust;

(x) "Settlement Agreement" means the proposed agreement between Canada and the First Nation dealing with the allegations raised in the XXXXXXXXXX Claim;

(y) XXXXXXXXXX

(z) "XXXXXXXXXX Reserve" means XXXXXXXXXX Indian Reserve XXXXXXXXXX , a "reserve" within the meaning of the Indian Act;

(aa) "XXXXXXXXXX Claim" means all facts, matters and issues, losses and damages of any nature or kind arising or resulting from one or more of the following allegations:

XXXXXXXXXX

(bb) "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;

(cc) "Total Amount" means the aggregate payments to be made by Canada to the First Nation totaling XXXXXXXXXX dollars in accordance with Article XXXXXXXXXX of the Settlement Agreement;

(dd) "Treaty XXXXXXXXXX " means Treaty XXXXXXXXXX entered into between Canada and XXXXXXXXXX ;

(ee) "Trust" means the XXXXXXXXXX , to be established pursuant to the Settlement Agreement, as described more particularly in 19 to 22 hereof, and to be administered in accordance with the terms and conditions of the Trust Agreement;

(ff) "Trust Agreement" means that certain trust agreement to be entered into and made between the First Nation and the Initial Trustees, pursuant to which the Trustees will agree to hold and invest the Trust Property for the exclusive benefit of the First Nation, as described more particularly in 23 to 42 hereof;

(gg) "Trust Property" means all monies at any time held in the Trust and, without limitation, includes:

a. the sum of one XXXXXXXXXX dollars received by the Initial Trustees to settle the Trust;

b. the portion of the Total Amount paid by Canada into the Trust, at the direction of the First Nation, in accordance with the Settlement Agreement;

c. all investments authorized by the Trust Agreement in which those monies may from time to time be invested by the Financial Trustees, or into which those monies may be converted by the Financial Trustees at any time or from time to time, as well as any additions or accretions thereto;

d. any sums repaid to the Financial Trustees in accordance with the provisions of the Trust Agreement; and

e. all other monies, securities, property and assets which the First Nation, or Canada at the direction of 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 Financial Trustees for the use and 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 of the Trust or pursuant to the provisions of the Trust Agreement;
and

(hh) "Trustees" means the Financial Trustees and the Community Fund Trustees from time to time acting under the Trust Agreement, and includes the Initial Trustees, and "Trustee" means any one of them.

FACTS

1. The First Nation files its tax returns with the XXXXXXXXXX Tax Centre and deals with the XXXXXXXXXX Tax Services Office.

First Nation Business Number: XXXXXXXXXX

First Nation Address:

XXXXXXXXXX

2. The First Nation, through the Council, has authority with respect to the Members and the geographic area of the Reserve, including the power to make by-laws in accordance with the Indian Act. The Chief and Councillors are democratically elected.

The First Nation has been involved with the negotiation and settlement of a treaty land entitlement agreement with Canada and XXXXXXXXXX , and is carrying out the administration and implementation of that agreement involving, among other things, the acquisition of additional land to set apart as an Indian Act reserve for the use and benefit of the First Nation. The First Nation is involved with the negotiation of the Settlement Agreement with Canada described herein, and will be involved in the administration and implementation of that agreement.

3. The First Nation has passed a number of by-laws pursuant to section 81 of the Indian Act, including by-laws for the following purposes:

• the regulation of traffic;
• the observance of law and order;
• the protection against and prevention of trespass by cattle and other domestic animals, the establishment of pounds, and the appointment of pound-keepers;
• to provide for disposal of garbage and waste;
• to provide for the control of business establishments on the Reserve; and
• to provide veterinary services to domestic animals.

4. The First Nation provides and administers an extensive list of public works, social services and infrastructure programs for the Members, including but not limited to:

• education programs;
• health programs;
• housing programs;
• garbage disposal services;
• water and sewage services;
• fire protection services;
• maintenance of infrastructure programs, including roads, sanitation and landfill;
• recreation and social programs;
• social services; and
• financial management and economic development.

5. On XXXXXXXXXX , the First Nation, formerly known as the XXXXXXXXXX , entered into Treaty XXXXXXXXXX with Canada.

6. XXXXXXXXXX

7. XXXXXXXXXX

8. XXXXXXXXXX

9. XXXXXXXXXX

10. XXXXXXXXXX

11. XXXXXXXXXX

PROPOSED TRANSACTIONS

12. Canada and the First Nation are in the process of completing their negotiations and wish to enter into the Settlement Agreement in order to settle the XXXXXXXXXX Claim.

13. After the Settlement Agreement has been ratified by the Members in accordance with the Community Approval Process, the First Nation and Canada will execute the Settlement Agreement.

14. Pursuant to the Settlement Agreement, Canada has agreed to pay, and the First Nation has agreed to accept, subject to the terms and conditions set out in the Settlement Agreement, the Total Amount, which will be comprised of the following:

(a) a contribution toward negotiation costs in the amount of $XXXXXXXXXX ;

(b) a payment in the amount of $XXXXXXXXXX as compensation for the XXXXXXXXXX Issue; and

(c) a payment in the amount of $XXXXXXXXXX as compensation for the XXXXXXXXXX Claim, up to and including the Effective Date.

15. At any time prior to the payment and contribution by Canada of the Total Amount, the First Nation will be entitled to adjust the allocation of the Total Amount set out in subparagraphs 14(a) and (c) hereof, provided that the final amount allocated toward negotiation costs may not be less than $XXXXXXXXXX and the amount of adjusted allocations by the First Nation may not, in total, exceed $XXXXXXXXXX . It is anticipated that the allocation of the Total Amount will be adjusted such that $XXXXXXXXXX will be deducted from the amount set out in subparagraph 14(d) hereof and added to the amount set out subparagraph 14(a) hereof on account of legal costs, which adjustment will be confirmed by a Council Resolution.

16. Pursuant to the Settlement Agreement, the First Nation will authorize and direct Canada to repay the full amount of all loans received by the First Nation from Canada, for the purposes of paying a reasonable portion of negotiation costs including completing the Community Approval Process, by deducting the full amount owing from the Total Amount.

17. After repaying the loans described in paragraph 16 hereof, and making the anticipated adjustment described in paragraph 15 hereof, the net amount to be paid by Canada to the First Nation pursuant to the Settlement Agreement is anticipated to be $XXXXXXXXXX .

18. In consideration of the Total Amount paid by Canada to the First Nation and the fulfillment of other promises made by Canada in the Settlement Agreement, the First Nation will forever release and discharge Canada and any of its Ministers, officials, servants, employees, agents, successors and assigns from any action, cause of action, suit, claim or demand whatsoever, whether in law, in equity or otherwise, which the First Nation and the past, present and future Members of the First Nation and any of their respective heirs, descendants, legal representatives, successors and assigns may ever have had, may now have or may in the future have against Canada and any of its Ministers, officials, servants, employees, agents, successors and assigns with respect to, among other things, the XXXXXXXXXX Claim and the XXXXXXXXXX Issue, as more fully set out in Article XXXXXXXXXX of the Settlement Agreement.

19. Under the Settlement Agreement, the First Nation has agreed to create the Trust to receive, invest, manage and administer the portion of the Total Amount anticipated to be deposited by Canada, at the direction of to the First Nation, in the Trust.

The Trust will file its tax returns with the XXXXXXXXXX Tax Centre and will deal with the XXXXXXXXXX Tax Services Office.

20. After the Trust Agreement has been approved by the Members in accordance with the Community Approval Process, the First Nation and the Initial Trustees will execute the Trust Agreement.

21. The First Nation, in its capacity as settlor of the Trust, will pay the sum of XXXXXXXXXX dollars to the Initial 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.

22. Pursuant to the Settlement Agreement, the First Nation will authorize and direct Canada to deposit into the Trust's account the balance of the Total Amount payable to the First Nation, which shall be added to the Trust Property and held for the benefit of the First Nation.

23. The financial administration of the Trust Property will be the sole responsibility of the Financial Trustees. In addition, the Financial Trustees will be required to perform, among other things, the following duties:

(a) engage professional financial management services to assist them in performing their duties under the Trust Agreement;

(b) call and hold general meetings of Members in accordance with section XXXXXXXXXX of the Trust Agreement;

(c) apply or distribute the Trust Property in accordance with Funding Directions issued by the Community Fund Trustees;

(d) maintain records and prepare financial statements and reports in accordance with Article XXXXXXXXXX of the Trust Agreement; and

(e) attend meetings where required under the Trust Agreement.

24. The Community Fund Trustees will have no responsibility under the Trust Agreement for the financial administration of the Trust Property. The Community Fund Trustees will be required to perform, among other things, the following duties:

(a) identify and determine proposed applications of the Trust Property to or for the benefit of the First Nation in accordance with the general principles, specific guidelines and restrictions contained in Article XXXXXXXXXX of the Trust Agreement;

(b) approve, by Ordinary Resolution, proposed applications of the Trust Property to or for the benefit of the First Nation identified in paragraph XXXXXXXXXX of the Trust Agreement that are less than XXXXXXXXXX dollars;

(c) recommend for approval to Council, by Ordinary Resolution, proposed applications of the Trust Property to or for the benefit of the First Nation identified in paragraph XXXXXXXXXX of the Trust Agreement that are XXXXXXXXXX dollars or more, but less than XXXXXXXXXX dollars;

(d) recommend for approval to the Members, by Ordinary Resolution, proposed applications of the Trust Property to or for the benefit of the First Nation identified in paragraph XXXXXXXXXX of the Trust Agreement that are XXXXXXXXXX dollars or more;

(e) provide the Financial Trustees with Funding Directions;

(f) maintain records and prepare reports in accordance with Article XXXXXXXXXX of the Trust Agreement; and

(g) attend meetings where required under the Trust Agreement.

25. All legal right, title and interest in the Trust Property will be vested exclusively in the Financial Trustees.

26. All beneficial right, title and interest in the Trust Property will be vested exclusively in the First Nation, as the sole beneficiary of the Trust, and the First Nation will be the sole entity entitled to enforce the obligations assumed by the Trustees under the Trust Agreement.

27. The Community Fund Trustees will be entitled to cause the Financial Trustees to distribute Trust Property to or for the benefit of the First Nation at such times and in such amounts as the Community Fund Trustees consider appropriate in connection with Expenditures Beneficial to the Beneficiary by delivering a Funding Direction to the Financial Trustees.

28. Upon receipt of a Funding Direction, the Financial Trustees will be required to 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. Such payments will be made firstly out of Secondary Income for a Taxation Year of the Trust, secondly, by repayment of Promissory Notes, and thirdly, out of Primary Income for a Taxation Year of the Trust or out of the capital of the Trust Property, as the Financial Trustees will determine.

29. Any amount to be distributed by the Financial Trustees upon receipt of a Funding Direction will be reduced by the total of all amounts already paid in cash or kind to the First Nation in whole or partial payment of an amount owing under any Promissory Note issued and delivered to the First Nation, except to the extent that such amounts have already been taken into account in determining the amount of a distribution under an earlier Funding Direction.

30. Except pursuant to a Funding Direction from the Community Fund Trustees in accordance with subparagraph XXXXXXXXXX of the Trust Agreement, the Financial Trustees will not distribute Primary Income for a Taxation Year of the Trust to the First Nation.

31. No distribution of Trust Property, other than distributions of Secondary Income for a Taxation Year of the Trust and payment on account of Promissory Notes, will be made which would, if made, reduce the net realizable value of the Trust Property, less outstanding Promissory Notes and other liabilities of the Trust, below the aggregate of the following amounts:

(a) XXXXXXXXXX dollars from the Total Amount deposited by Canada in the Trust, at the direction of the First Nation, in accordance with the terms of the Settlement Agreement;

(b) XXXXXXXXXX percent of all amounts of income added to the capital of the Trust Property under subparagraph XXXXXXXXXX of the Trust Agreement; and

(c) XXXXXXXXXX percent of the value of any monies, securities, property and assets added to the Trust Property under subparagraph XXXXXXXXXX of the Trust Agreement.

32. Any income arising from the Trust Property which forms part of the basis for determining Primary Income for a Taxation Year of the Trust that has not been 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.

33. The First Nation, or any other person at the direction of the First Nation, may add other monies, securities, property and assets to the Trust Property from any source as authorized and approved by Council Resolution or by Ordinary Resolution of the Members. Any such addition to the Trust Property will be governed by the terms of the Trust Agreement as though it was a part of the portion of the Total Amount deposited by Canada in the Trust, at the direction of the First Nation, pursuant to the terms of the Settlement Agreement.

34. The Financial Trustees will calculate the Secondary Income for each Taxation Year of the Trust.

35. All of the Secondary Income for a Taxation Year of the Trust that has not been paid to the First Nation earlier in the Taxation Year of the Trust will be payable to the First Nation on the last day of that taxation year. The Secondary Income for a Taxation Year of the Trust payable to the First Nation will be paid by the Financial Trustees issuing to the First Nation, as soon as practicable and within a time period not to exceed XXXXXXXXXX months from the end of the Taxation Year of the Trust in which the Secondary Income for a Taxation Year of the Trust is earned, a Promissory Note payable to the First Nation for the unpaid Secondary Income for a Taxation Year of the Trust. Each Promissory Note will be issued as absolute payment by the Financial Trustees of the obligation to pay the unpaid Secondary Income for a Taxation Year of the Trust to the First Nation.

36. The First Nation will have the right to enforce the payment of the balance of the Secondary Income for a Taxation Year of the Trust on the last day of the Taxation Year of the Trust and at any time thereafter until paid. For greater certainty, the Secondary Income for a Taxation Year of the Trust will not be added to the capital of the Trust Property, but will be paid to the First Nation in the manner provided in paragraph 35 hereof.

37. There will at all times be XXXXXXXXXX Community Fund Trustees elected to act under the Trust Agreement. If for any reason there are fewer than XXXXXXXXXX Community Fund Trustees at any time, the vacancy will be filled in accordance with the provisions of the Trust Agreement, but the Community Fund Trustees will continue to act in accordance with the provisions of the Trust Agreement. If for any reason there are fewer than XXXXXXXXXX Community Fund Trustees at any time, the Community Fund Trustees will be precluded from recommending or approving Expenditures Beneficial to the Beneficiary until there are at least XXXXXXXXXX Community Fund Trustees.

38. There will at all times be XXXXXXXXXX Financial Trustees of which XXXXXXXXXX will be elected and XXXXXXXXXX will be appointed to act under the Trust Agreement. If for any reason, there are fewer than XXXXXXXXXX Financial Trustees at any time, the vacancy will be filled in accordance with the provisions of the Trust Agreement but the Financial Trustees will continue to act in accordance with the provisions of the Trust Agreement. If for any reason, there are fewer than XXXXXXXXXX Financial Trustees at any time, the Financial Trustees will be precluded from making distributions of Trust Property to or for the benefit of the First Nation in respect of Expenditures Beneficial to the Beneficiary, but will preserve and protect the Trust Property until there are at least XXXXXXXXXX Financial Trustees.

39. At all times, at least XXXXXXXXXX Financial Trustees and at least XXXXXXXXXX Community Fund Trustees will be Members, of which at least XXXXXXXXXX Financial Trustees and at least XXXXXXXXXX Community Fund Trustees will ordinarily reside on Reserve during their respective terms of office and at least XXXXXXXXXX Financial Trustee and at least XXXXXXXXXX Community Fund Trustee will ordinarily reside off Reserve during their respective terms of office. At least XXXXXXXXXX Financial Trustee will be a XXXXXXXXXX and at least XXXXXXXXXX Financial Trustee will be either a XXXXXXXXXX or other person, who is a member of a professional body which regulates his or her employment or business activities. Except for the Initial Trustees, no member of Council may be a Trustee, and no person may be both a Financial Trustee and a Community Fund Trustee at the same time.

40. The Trust will continue until terminated by a vote of the Members to terminate the trust in which not less than XXXXXXXXXX percent of the Members entitled to vote cast a vote and not less than XXXXXXXXXX percent vote to approve the termination of the Trust.

41. Upon termination of the Trust, the Trust Property then remaining will be transferred to the First Nation and will be applied by the First Nation as determined by a vote in which not less than XXXXXXXXXX percent of the Members entitled to vote cast a vote and not less than XXXXXXXXXX percent vote to approve of the application of the Trust Property.

42. The Trust Agreement may be amended to deal with changes in the law applicable to the Trust provided that the proposed changes have been approved by Council Resolution. Provisions of the Trust Agreement which are of an administrative or procedural nature that do not substantially alter the entitlements or obligations of the parties to the Trust Agreement, including the beneficial interest of the First Nation, may be amended at any time by the Financial Trustees by Ordinary Resolution.

PURPOSES OF THE PROPOSED TRANSACTIONS:

43. The purposes of the Proposed Transactions are to provide for the settlement of the XXXXXXXXXX Claim, including the XXXXXXXXXX Issue, and to establish the Trust for the benefit of the First Nation to administer the settlement proceeds and to facilitate the objectives set out in the Trust Agreement.

RULINGS GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purposes of the proposed transactions, we rule as follows:

A. Because the First Nation is considered a public body performing a function of government in Canada within the meaning of paragraph 149(1)(c) of the Act, and therefore exempt from tax under Part I of the Act, no tax will be payable under Part I of the Act by the First Nation with respect to

(i) the Total Amount described in paragraph 14 hereof;
(ii) any amounts included in the income of the First Nation as a result of the application of subsection 75(2) of the Act; or
(iii) any Secondary Income for a Taxation Year of the Trust paid to the First Nation as described in paragraphs 28 and 35 hereof.

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

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

D. The Trust will be a trust described in paragraph (g) of the definition of "trust" in subsection 108(1) of the Act, and, as a result, it will not be a trust to which subsections 104(4), (5) and (5.2) of the Act will apply.

E. Subsection 75(2) of the Act will apply to

(i) the income or loss from the property received by the Trust from the First Nation, including the sum of XXXXXXXXXX dollars received by the Initial Trustees to initially settle the Trust and the amounts paid by Canada, at the direction of the First Nation, into the Trust pursuant to the Settlement Agreement, and
(ii) the income or loss from any property substituted for the property described in (i) above, and
(iii) any taxable capital gain or allowable capital loss from the disposition of the property or substituted property described in (i) and (ii) above, and such income, loss, taxable capital gain or allowable capital loss will be that of the First Nation and not the income, loss, taxable capital gain or allowable capital loss of the Trust.

F. In computing its Income for a Taxation Year of the Trust, pursuant to paragraph 104(6)(b) of the Act, the Trust will be entitled to deduct an amount that would be its income for the year as became payable in the year to a beneficiary, and for the purpose of applying paragraph 104(6)(b), an amount equal to the Secondary Income will be considered to be payable in the year.

G. The Trust will not be subject to tax under Part XII.2 of the Act in a taxation year, provided that the Trust complies with subsection 210.3(1) of the Act in that year.

The above advance income tax rulings, which are based on the Act and Income Tax Regulations in their present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R5 Advance Income Tax Rulings, dated May 17, 2002, and are binding on the Canada Revenue Agency provided that the proposed transactions are completed by XXXXXXXXXX .

This letter is based solely on the facts and proposed transactions described above. 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.

Yours truly,

XXXXXXXXXX
For Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch