17 November 1992 Income Tax Severed Letter 9230775 - Indian Trusts - Settlement Negotiations

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.

Mr. Gregor MacIntosh
Director General
Registration, Revenues 923077
and Band Governance Glen Thornley
Indian and Northern Affairs Canada (613) 957-2101
Terrasses de la Chaudiere
10 Wellington Street, North Tower
Ottawa, Ontario
K1A 0H4

Dear Mr. MacIntosh

Re: 24(1)

This is in reply to your letter of October 8, 1992, and further to telephone conversations on October 26, 1992 (Thornley\Mehta) and issues raised during the meeting on November 2, 1992 between yourself, Ms Mehta of your Department and Mr. B. Dath and Mr. E. Wheeler of this Department, concerning settlement negotiations with the 24(1).

You indicate that tax consequences of the transfer of funds to the Band have surfaced during discussions that require input from Revenue Canada, Taxation before the resolution of the settlement negotiations can be effected.

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Our answers follow the point order of your questions.

• 1. The question of whether property held by a trust for the benefit of Indians or a band is the property of the trust or property of the Indians or the band is a matter best left to trust lawyers and in our view is not an issue to be resolved by this Department. The answer, however, will have an impact on the tax consequences of the arrangement. Our understanding is that typically, the property owned by the beneficiary of a trust is an interest in the trust, rather than the underlying property.
• 2. Whether property held by a trust for the benefit of Indians or a band qualifies as "personal property" of the Indians or the band for the purposes of paragraph 87(1)(b) of the Indian Act is a question of fact to be determined largely by the wording of the trust documents. Typically, the "personal property" of the Indians or the band would be the interest in the trust, rather than the property held by the trust.
• 3. If property held by a trust for the benefit of Indians or a band is itself "personal property" of the Indians or the band, then the property would be considered as situated on a reserve if that property, on its own merits, would be considered located on a reserve. If, on the other hand, the "personal property" is the interest in the trust, the situs of the trust must be considered in light of other factors connecting it to a location on or off a reserve. An important factor would be the nature of the underlying property in the trust, and whether that property would be viewed as being located on a reserve if considered on its own merits. Other relevant factors could include the residence of the trustees, the residence of the beneficiaries, the source of the capital of the trust, and the place where the trust is managed.
• 4. Property transferred by the Crown to a trust for the benefit of Indians or bands will qualify under paragraph 90(1)(b) of the Indian Act if it enures to Indians or bands through the discharge by "Her Majesty" of her treaty or ancillary obligations. In our view, it would not matter whether the Crown was the settlor of the trust or the Crown gave the property to a band which in turn was the settlor of the trust.
• 5. The initial investment income derived from property which comes within subsection 90(1) of the Indian Act would be income earned from property deemed to be situated on a reserve and so would be exempt from taxation. However, it is questionable if income earned on accumulated investment income in these circumstances would receive the protection of subsection 90(1) of the Indian Act.

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• 6. As we indicated in our March 17, 1992 letter, the initial transfer of funds from the Consolidated Revenue Funds to the band trust should not have any immediate tax consequences. The funds from oil and gas revenues from reserve lands would have been received as exempt income by Indians or the bands if received directly.
• 7. Moneys earned by a trust situated on a reserve and retained in the trust would be taxable to the trust.

We trust our comments will be of assistance to you.

Yours truly,

R.J.L. Read
Director General
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

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