Income Tax Severed Letters - 2026-02-04

Technical Interpretation - External

19 August 2025 External T.I. 2025-1066571E5 - Distribution of settlement monies to First Nation

Unedited CRA Tags
87 IA; 81(1)a); 149(1)c) ITA
Summary Under
Tax Topics - Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(c)
Indian band council is always a s. 149(1)(c) exempt municipality
Summary Under
Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a)
distribution of land claims settlement amount by Indian band council to its members (including non-Indians) would not constitute income from a source
Summary Under
Tax Topics - Income Tax Act - Section 104 - Subsection 104(13)
land compensation received by a trust formed an Indian band council would be treated as a capital distribution when distributed

Principal Issues: 1) What are the tax consequences of the following transactions:
i) Payment to the council of a band of monies arising from the settlement of specific claims made by a First Nation against the government of Canada;
ii) Distribution of the settlement monies to members of the band directly by the council of the band;
iii) Distribution of the settlement monies to members of the band by way of a trust settled by the council of the band.
2) Does the comment made by the CRA in 2014-0528511I7, in respect of the condition that members of the First Nation do not have an exclusive or legally enforceable claim to an income distribution, apply in the context of a capital distribution? Are the connecting factors mentioned in 2014-0528511I7 accurate and exhaustive in respect of income of a trust being situated on a reserve?

Position: 1) i) Payment of settlement monies should not be taxable for the council of the band.
ii) Distribution of settlement monies should not be taxable for the members of the band.
iii) Distribution of settlement monies should not be taxable for the members of the band.
2) The comment was made in the context of the specific facts of the interpretation. The connecting factors identified are accurate, but not necessarily exhaustive.

Reasons: 1) i) The council of the band qualifies as a tax exempt entity under paragraph 149(1)c).
ii) There is no source of income for the members.
iii) The distributions are capital distributions.
2) No specific mention of capital distributions in 2014-0528511I7. For the connecting factors, see Williams c. Canada, [1992] 1 R.C.S. 877.

5 August 2025 External T.I. 2024-1045401E5 - NPO - Accumulated Surplus

Unedited CRA Tags
149(1)(l)

Principal Issues: (1) Whether earning interest income from investing lifetime membership fees would disqualify an organization from the income tax exemption under paragraph 149(1)(l) of the Act. (2) Under what circumstances would an accumulated surplus be considered reasonable for the organization for the purposes of paragraph 149(1)(l) of the Act. (3) Whether covering the cost of food during an annual general meeting, which is open to all members, is considered making income available for personal benefit of the members for purposes of paragraph 149(1)(l) of the Act.( 4) Whether using a surplus accumulated from past events to cover members’ expenses at future events is considered making income available for personal benefit of the members for purposes of paragraph 149(1)(l) of the Act. (5) Whether the organization covering the member expenses at future events for only select members is considered making income available for personal benefit of the members for purposes of paragraph 149(1)(l) of the Act.

Position: 1) Question of fact, but likely no. 2) Question of fact, general comments. 3) and 4) Question of fact, but likely no. 5) Maybe, but question of fact.

Reasons: Consistent with prior positions and case law.

17 July 2025 External T.I. 2025-1061051E5 - Specified foreign property

Unedited CRA Tags
233.3; 233.2(1) exempt trust; 248(1) cost amount.

Principal Issues: Is the XXXXXXXXXX a "specified foreign property" such that a T1135 reporting obligation may exist?

Position: None taken.

Reasons: We do not have sufficient information about the XXXXXXXXXX to definitively determine whether it meets the definition of "specified foreign property" in subsection 233.3(1) however, general information provided.

Technical Interpretation - Internal

23 July 2025 Internal T.I. 2025-1056911I7 - 184(3) election and dividend refund determinations

Unedited CRA Tags
184(3), 129(1), 152(1), 152(1.2), 152(2), 152(3.1), 152(4), 152(4.1), 220(3.2), 220(3.4), 220(3.5)

Principal Issues: Whether the CRA has the authority under the Act to reassess the taxation year of a corporation in which it paid an excessive capital dividend in order to reflect the corresponding changes resulting from the CRA’s acceptance of its subsection 184(3) election, including the deemed payment of a taxable dividend and possibly a dividend refund, if the taxation year is statute barred.

Position: Depends on the facts and circumstances.

Reasons: Generally speaking, if the corporation had previously filed a T2 return that reported a dividend refund (within the period required by subsection 129(1)), the Minister may redetermine that dividend refund to reflect the deemed taxable dividend resulting from the subsection 184(3) election provided that the normal redetermination period has not ended. If a dividend refund was not previously reported, the Minister may determine any amount of dividend refund, provided that the other necessary conditions of subsection 129(1) have been met. In any event, the correct amount of impacted balances should be used in subsequent taxation years under the New St. James principle.