Principal Issues: 1. Whether subsection 75(2) will apply to any income or loss from the Compensation Balance received by the Trust as described in Paragraph 13, or from property substituted therefor, and any taxable capital gain or allowable capital loss from the disposition of the Compensation Balance, or property substituted therefor. 2. Whether the trust will be able to make deductions under subsection 104(6) in respect of Annual Income of the Trust for a Taxation Year, excluding any income in respect of which subsection 75(2) applies, paid by the Trust to the First Nation during the Taxation Year under subsections XXXXXXXXXX of the Trust Agreement, and, after the Original Capital Use Date, under subsection XXXXXXXXXX of the Trust Agreement? 3. Where any property of the Trust is distributed by the Trust to the First Nation and there is a resulting disposition of all or any part of the First Nation’s capital interest in the Trust, will subsection 107(2) apply? 4. Will the payment of initial per capita distributions from the First Nation to its members be taxable?
Position: 1. Yes, such income shall be deemed to be income or a loss, as the case may be, or a taxable capital gain or allowable capital loss, as the case may be, of the First Nation, pursuant to subsection 75(2). 2. Such income will be considered to have become payable in the Taxation Year to the First Nation and may be deducted in computing the taxable income of the Trust for the Taxation Year pursuant to 104(6)(b). Income paid by the Trust to the First Nation pursuant to those subsections of the Trust Agreement during a Taxation Year will be considered to be sourced first from income in respect of which subsection 75(2) does not apply. 3. Yes, subject to subsections 107(2.001), (2.002) and (4) to (5), subsection 107(2) will apply. 4. No.
Reasons: 1. The First Nation will be the settlor of the Trust, directing Canada to make payments to the Trust on behalf of the First Nation. The First Nation is the sole beneficiary and on the termination of the Trust, all of the Trust’s property will be transferred to the First Nation. 2. Such amounts will be considered payable to the Beneficiary pursuant to subsection 104(24). 3. The law. 4. The payment of the initial per capita distributions is not considered income from a source within the meaning of paragraph 3(a), another source of income under subdivision d, or a disposition of property. Therefore, the initial per capita distributions received by the Members of the First Nation would not be included in calculating their income under Part I of the Act.
