15 December 1993 Income Tax Severed Letter 9333917 - Indian Trust Property

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.

Treaty Land Entitlement
Indian & Northern Affairs Canada                   933391
810 — 1550 Alberni Street
Vancouver, B.C.
V6G 3C5

Attention: Mr. A. Gross

December 15, 1993

Dear Sirs:

Re: Taxation on Treaty Land Entitlement (TLE) Trust Property

This is in reply to your facsimiled memorandum dated November 19, 1993, requesting an explanation of the Department's views on the taxation of TLE Trust property. On these issues we offer the following comments.

* The determination of whether or not property held by a trust for the benefit of Indians or a band is considered to be the property of the trust, or conversely the property of the band (or the Indians) is a matter that will impact on the tax consequences of the arrangement. In our view this question is a legal dilemma that should be resolved by trust lawyers and is not an issue to be resolved by this Department.

* Property owned by the beneficiary of a trust is an interest in the trust, rather than an interest in the underlying property.

* 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.

* 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. We had earlier expressed the view to your Department that 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 in this consideration 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. However, that view had been expressed by this Department as we were exploring the scope of the Williams decision on all types of income. We have more recently been focusing our deliberations on the effects of the Williams decision on employment income. Accordingly, until we have further studied the effects of the Williams decision, the Department maintains its general view on trusts as expressed in IT-447 , that the residence of the trust is dependent on the residence of the majority of the trustees exercising management and control of the trust.

* Pursuant to paragraph 90(1)(b) of the Indian Act, personal property that was given to Indians or to a band under a treaty or agreement between the band and Her Majesty, shall be deemed always to be situated on a reserve. This provision also applies to property that is considered as given ancillary to the original treaty agreement. Accordingly, property transferred by the Crown to a trust for the benefit of Indians or bands, that enures to Indians or bands through the discharge by "Her Majesty" of her treaty obligations, will qualify under paragraph 90(1)(b) of the Indian Act. 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.

* 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.

* The initial transfer of funds from the Consolidated Revenue Funds to the band trust should not have any immediate tax consequences.

* Moneys earned by a trust situated on a reserve and retained in the trust would be taxable to the trust.

The above comments represent an expression of opinion and accordingly are not binding on the Department as explained in paragraph 21 of Information Circular 70-6R2.

We trust our comments will be of assistance to you.

Yours truly,

B.W. Dath Director Rulings Directorate Legislative and Intergovernmental Affairs Branch