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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
December 12, 1994
XXXXXXXXXX E4M0809
Dear XXXXXXXXXX:
I am writing to confirm our telephone conversation of November 30, 1994.
You stated that individuals at the XXXXXXXXXX Reserve have decided to contribute XXXXXXXXXX percent of their income from employment to the band. The purpose of the contribution is to assist the band with its efforts in regard to the social and economic welfare of the reserve and its residents. The contributors will not be able to specify what the funds will be used for, other than in general terms. In other words specific contributions to the funds will not be available for the direct personal benefit of the contributor.
This program was agreed to at a general meeting of the band council at which the majority of residents were present. Those that were not present have been made aware of the program. Contributions are voluntary and there is no penalty should an individual decide that they do not want to contribute.
You are requesting the employers involved to deduct the XXXXXXXXXX percent from their employees earnings and to make one payment to the band council rather than have each individual make the contribution directly. One employer has asked you to confirm the income tax treatment of the contributions to the individuals involved and you queried whether the band can issue a donation receipt for these payments.
Subsection 118.1(3) of the Income Tax Act provides a tax credit, within specified limits, for gifts made by individuals to qualified donees, if supported by official receipts issued in accordance with the Income Tax Regulations. A gift is a voluntary transfer of property without valuable consideration. A gift can be said to have been made where all of the following conditions are satisfied:
(a)property (usually cash) is transferred by a donor to a donee;
(b)the transfer is voluntary; and
(c)no consideration or benefit accrues to the donor or to anyone designated by the donor as a result of the transfer.
A Canadian municipality is a qualified donee and may issue receipts for donations. The Department has treated certain Indian bands as municipalities for the purposes of issuing receipts for donations. In Interpretation Bulletin IT-62, issued in 1972, we state that
8. The word "municipality" is not defined in the Income Tax Act and must therefore be considered to have the meaning assigned to it by dictionaries and common usage. The accepted general definition is a town, city or other district having powers of local self-government or the body governing such an area. The important qualifying factor is that of local self-government.
9. The Indian Act, R.S.C. 1970, Ch. I-6, assigns various powers to an Indian band council. Section 81 authorizes the council to make by-laws that are not inconsistent with the Indian Act or regulations made by the Governor-in-Council or the Minister of Indian Affairs and Northern Development for various purposes, including among other things the regulation of traffic, the observance of law and order, and the zoning of the reserve. The by-laws made by the council are enforceable by the imposition of fines and imprisonment on conviction.
10. When the Governor-in-Council declares that a band has reached an advanced stage of development, the council of the band is authorized, under Section 83 of the Indian Act and subject to the approval of the Minister of Indian Affairs and Northern Development, to make by-laws to raise money by the taxation of land and the licensing of businesses, callings, trades and occupations.
11. The powers exercised by band councils that have reached the advanced stage of development required by Section 83 of the Indian Act and the powers exercised by other Canadian municipalities are so similar that such band councils will be regarded as Canadian municipalities for purposes of subparagraph 110(1)(a)(iv) and paragraph 149(1)(c) of the Income Tax Act.
12. As a Canadian municipality, registration as a charitable organization is not required and no registration number is issued. Gifts to a band council are deductible from the income of the contributor, within prescribed limits, when evidenced by a receipt issued by and in the name of the band council, as gifts to a Canadian municipality under subparagraph 110(1)(a)(iv) of the Income Tax Act.
13. As in the case of payments to any Canadian municipality, payments that the council is authorized to demand, or from which any right, privilege, material benefit or advantage accrues to the donor, will not be regarded as gifts.
The bulletin is somewhat out of date as section 83 of the Indian Act was amended in 1988 deleting the reference to the advanced stage of development; however, a band council will continue to be a qualified donee if it previously qualified or would have qualified under the circumstances set out in IT-62. For those band councils not ``grandfathered'' as indicated, the Department's present policy is to regard Indian band councils as municipalities for the purpose of issuing donation receipts where they exercise or have exercised the powers authorized under both sections 81 and 83 of the Indian Act.
From the information that you have provided, it is our view that the payment of XXXXXXXXXX percent of salary would be a donation. Of course in the case of payroll deductions, it is the gross earnings of the individual that are subject to taxation.
I trust that the above information will enable the band council to determine whether they are a qualified donee and eligible to issue receipts that can be claimed for a tax credit by the individuals.
Yours truly
Bryan W. Dath
Director
Business & General Division
Rulings Directorate
Policy and Legislation Branch
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