7 March 2013 Internal T.I. 2011-0428491I7 - Paragraph 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: Request for our views on a "municipal or public body performing a function of government in Canada" within the meaning of paragraph 149(1)(c) of the Act for the purpose of the definition of "qualified donee" in subsection 149.1(1) of the Act.

Position: General comments and suggested information/ documentation to be submitted to the Charities Directorate for registration purposes given.

Reasons: Municipal or public bodies performing a function of government in Canada must apply to the Charities Directorate to be a "qualified donee" to be able to issue charitable donation receipts for gifts received.

March 7, 2013

Charities Directorate Headquarters
Policy, Planning and Legislation Income Tax Rulings
Directorate
P. Burnley
Attention: Susan Mott (613) 957-8961
2011-042849

Qualified Donee – Municipal or Public Body Performing a Function of Government in Canada

We are writing in response to your request for our views with respect to a "municipal or public body performing a function of government in Canada" pursuant to paragraph 149(1)(c) of the Income Tax Act (the "Act"). Your request has arisen due to the requirement that, as of January 1, 2012, a municipal or public body performing a function of government in Canada must apply for registration with the Canada Revenue Agency ("CRA") in order to become or remain a qualified donee in subsection 149.1(1) of the Act.

Specifically, a municipal or public body performing a function of government in Canada that has applied to and is registered by the Minister of Revenue, is a "qualified donee" pursuant to subparagraph (a)(iii) of the definition of "qualified donee" in subsection 149.1(1) of the Act. Sections 118.1 and 110.1 of the Act provide that within specified limits, and if supported by official receipts, individual taxpayers may claim a credit against taxes payable, and corporations may claim a deduction in computing taxable income, respectively, for an eligible amount of a gift made to a "qualified donee". The qualified donee must be shown on a list maintained and made public by the CRA. The requirement to apply for, be registered, and be maintained on a publicly available list became effective January 1, 2012.

We understand that the Charities Directorate is currently developing a process for a municipal or public body performing a function of government in Canada to apply for registration as a qualified donee and is seeking our assistance in this regard.

Our comments

Municipal or public body performing a function of government in Canada within the meaning of paragraph 149(1)(c) of the Act

Municipal body

The term "municipal body" is not defined in the Act. However, we consider a municipal body to have similar characteristics to a municipality. In this regard, a municipal body is typically considered to be a body established or exercising a power under a municipal act or a similar statute of a province or territory with respect to governing the affairs or purposes of a geographic area and is accountable to those governed by it.

Public body

The term "public body" is also not defined in the Act. A public body is typically a body that acquires both its existence and its authority from a statute enacted by a legislature, and whose functions and transactions are for the benefit of, and affect the whole community of, persons to which its authority extends. Generally, a public body has a governance purpose and is accountable to those governed, regulated or represented by it.

Generally, a public body is:

1. An Indian band as defined in the Indian Act with procedures to elect Chief and council.

2. Other Aboriginal governments with election procedures.

3. A body (whether incorporated or not, the members of which may be elected or appointed) established under or as a result of implementing a statute with specific authorization and duties assigned by the statute to the body to develop, administer or regulate governance functions.

Further, in our view, if a public body is incorporated, the federal government or a provincial or territorial government, or the "public" that the corporation is serving or representing should have some specific control over the actions and operation of the corporation and the corporation should be accountable to either that government or that public.

Performing a function of government in Canada

In addition to being a municipal or public body, an entity must also be performing a "function of government" in Canada in order to qualify for the exemption from tax provided by paragraph 149(1)(c) of the Act. Again, the term "function of government" is not defined in the Act and reference must be made to the ordinary usage of this term.

A government typically taxes its residents and sets laws for the orderly management of the area over which it has jurisdiction. As part of managing the area, the government provides a wide variety of services. It is important to note that any particular service provided by a government is not necessarily equivalent to a "function of government".

In our view, a function of government generally means an activity or group of activities undertaken to meet a governance role or purpose within a geographic area. Historically, the CRA has required that to be performing a function of government an entity must have the ability and powers to govern, tax, pass by-laws and/or provide municipal- or provincial-type services to its members/citizens.

The CRA has accepted that providing a range of municipal-type services, such as water, sewage removal, the pick-up of garbage and the maintenance of infrastructure such as roads, sewers and public buildings is a function of government. Further, providing a key service traditionally offered by the provinces or territories such as social services, overseeing of the environment, health services, and education is generally considered to constitute performing a function of government. The CRA also accepts that negotiating a treaty with the federal government, or a provincial or territorial government, is a function of government.

Accordingly, performing a function of government may be demonstrated by the following:

• Laws and Taxation
  • Enacting and enforcing laws, by-laws or rules which all citizens (or, in the case of an Indian band or other Aboriginal government, all of the band's or other Aboriginal group's citizens or members) must follow.
  • Imposing and collecting taxes.
• In the case of an Indian band or other Aboriginal government:
  • Negotiating and implementing a treaty or self-government agreement with the Crown (e.g., a federal, provincial or territorial government), and continued administration of the agreement.
  • An Indian band has passed by-laws under both sections 81 and 83 of the Indian Act.
  • An Indian band has passed by-laws under both section 81 of the Indian Act and subsection 5(1) of the First Nations Fiscal and Statistical Management Act.
• Being responsible for and providing provincial-type services or a range of municipal-type government services as follows:

Provincial-type services

• Education
• Health care
• Protection of the environment
• Natural resources
• Designation of park land and other special use property

Municipal-type services

• Sewage removal
• Waste disposal
• Water treatment and delivery
• Building of infrastructure
• Maintenance of infrastructure (such as sewers, public buildings and maintaining and clearing of roads)
• Public transit
• Fire protection services
• Police services
• Paramedic/ambulance services
• Recreational services
• Social services
• Library services

Note that any one of these activities or services may not be sufficient for the entity to be considered a municipal or public body performing a function of government; it depends on the scope of the service or activity.

Geographical boundaries

As mentioned, we would expect a municipal or public body performing a function of government in Canada to have a governance role or purpose within a geographic area.

Proposed subsection 149(11) of the Act provides that the geographical boundaries of a municipal or public body performing a function of government to be either:

"…(a) the geographical boundaries that encompass the area in respect of which an Act of Parliament or an agreement given effect by an Act of Parliament recognizes or grants to the body a power to impose taxes; or

(b) if paragraph (a) does not apply, the geographical boundaries within which that body has been authorized by the law of Canada or a province to exercise that function…"

The explanatory notes explain that proposed subsection 149(11) of the Act is added to define, for the purposes of section 149, the geographical boundaries of a municipal or public body performing a function of government in Canada. The explanatory notes state:

"For example, if a particular self-governing First Nation meets the definition of "a public body performing a function of government in Canada," it is intended that the relevant geographic boundary would delineate the area where the self-government agreement, or the statute enacting self-government powers, provides the First Nation authority to impose direct taxes. As a second example, if a particular Indian Band meets the definition of "a public body performing a function of government in Canada," it is intended that the geographic boundary of the Indian Band be the band's reserves as defined in the Indian Act. Similarly, if a particular school board meets the definition of "a municipal or public body performing a function of government in Canada" it is intended that the geographic boundary of the school board be the area of jurisdiction of the board as defined by provincial legislation or regulation."

Application process

As mentioned, your Directorate is currently developing the process for a municipal or public body performing a function of government in Canada to apply for registration as a qualified donee (the "Applicant"). You have requested assistance with respect to the documentation required of an Applicant for registration as a qualified donee.

In our view, an Applicant must clearly provide support to indicate that it is a municipal or public body performing a function of government in Canada. Presently, as there is no prescribed form to apply for registration, an Applicant should submit a letter to the CRA (Charities Directorate) and include documentation such as the following:

• Identifying information of the Applicant, i.e., name, mailing address, business number, tax services office and tax centre servicing the entity.
• A statement as to whether, to the best of the Applicant's knowledge, the issue of whether the Applicant is a municipal or public body performing a function of government in Canada, within the meaning of paragraph 149(1)(c) of the Act, is being considered or has previously been considered by the CRA.
• If the Applicant has previously been determined by the CRA to be a municipal or public body performing a function of government in Canada, a copy of the determination letter or of the advance income tax ruling letter, or any other relevant correspondence previously issued by the CRA.
• A complete description of the Applicant. The description should include:
• an explanation of how the Applicant was created and how it is organized (how the officials are elected or appointed);
• the Applicant's purpose;
• the geographical area over which the Applicant has responsibility and authority;
• an explanation of the persons that the Applicant is governing and accountable to; i.e., the residents and members for which the Applicant is responsible in its authorized area; and
• an explanation of the responsibilities and powers of the Applicant and of the programs and services offered by the Applicant. The description of programs and services should explain what the Applicant is actually performing, not simply what it is empowered to do.
• A statement as to how the Applicant meets the criteria as a municipal or public body performing a function of government in Canada.
• An explanation of the source of revenues of the Applicant, including any funding received from other governments.
• If relevant, a description of any other activities carried on by the Applicant, such as business activities. The Applicant should also advise if any activities are carried out by a subsidiary entity(s) of the Applicant.
• Copies of supporting documents and agreements supporting the Applicant's request as necessary. Some of these supporting documents are shown in the examples below.
• A summary of the relevant facts contained in the supporting documents and agreements.

It should be noted that the above information should not be considered an exhaustive list. Additional information may be required as each application is reviewed. In addition, all of the documentation suggested may not be necessary in every situation.

We provide the following two examples for your assistance:

Example: An Indian band that is a public body performing a function of government in Canada

Generally, the CRA has accepted that an Indian band or Indian organization that clearly provides government services and is accountable to either the federal, or a provincial or territorial government, or directly to the band members it represents, is a public body. An Indian band is considered to be performing a function of government if it demonstrates that it performs functions and provides services in a manner generally exhibited by a government.

Along with the general information described above, information and documentation that support an Indian band's application would be:

• The fact that the Indian band is a band as defined in subsection 2(1) of the Indian Act. This information can be verified on the Aboriginal Affairs and Northern Development Canada website.
• A statement with respect to the members of the band and the reserves over which the band has responsibility, or in the case of a self-governing First Nation, the lands transferred to it pursuant to a land settlement agreement or self-government agreement.
• A description of the election procedures of the Chief and council (generally the election procedures are in accordance with the provisions of the Indian Act).
• If the Indian band has section 81 and 83 bylaws passed pursuant to the Indian Act, or section 81 of the Indian Act and section 5 of the First Nation Fiscal and Statistical Management Act, copies of the bylaws should be submitted.
• If applicable, information explaining that the Indian band is involved in the negotiation of a settlement agreement with Canada or a province or territory and will continue to be involved in the administration and implementation of the settlement agreement. This can be evidenced by documentation such as letters of intent to negotiate a treaty, information relating to the stage of the treaty negotiation, or agreements entered into relating to the implementation of taxes.
• A description of the programs and services for which the First Nation is responsible and is providing. These programs and services may be supported with a copy of agreements between Health Canada and/or Aboriginal Affairs and Northern Development Canada.

Example: Other organization that is a municipal or public body performing a function of government in Canada

Along with the general information described above, information and documentation that support an organization's application may include:

• Creating documents, such as the Act of Parliament or an agreement given effect by Parliament, or the authority that recognizes or grants to the body the power to impose taxes, or gives power and authority to the entity to govern in a geographical area.
• Financial statements, including a statement of revenue and expenses and a statement of assets and liabilities. The statement should be descriptive of the sources of the entity's income and the main expenditures of the entity.

R. Albert, CA
Manager
Non-Profit Organizations and Aboriginal Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch