30 November 1996 Ruling 9711803 - TREATY LAND ENTITLEMENT XXXXXXXXXX

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.

PRINCIPAL ISSUE:

1. The main issue is whether each of the First Nations which is party to a treaty land entitlement settlement, will be exempt from tax on income which it will receive from the predetermined, restricted, and temporary investment of the settlement proceeds. The proceeds are required to be used to acquire reserve lands or for community development or to pay for expenses related to the settlement.

2. Whether amounts payable by each Trust to its beneficiary will be deductible under subsection 104(6) of the Income Tax Act in computing the Trust's income.

3. Whether the provisions of section 103 of the Income Tax Act would apply to alter the allocation of Partnership income among the partners.

Position:

1. Yes, based on a factual determination that each of the XXXXXXXXXX First Nations are considered to be a public body performing a function of government in Canada, as per paragraph 149(1)(c) of the Income Tax Act.

2. Yes, since each amount will be payable within the meaning of subsection 104(24) of the Income Tax Act.

3. No.

Reasons:

1. Each of the Entitlement First Nations (either itself or through its council or otherwise) provides its members with various community services, and each of the Entitlement First Nations has negotiated (directly or through XXXXXXXXXX) with Canada the agreements which are the subject of this ruling and will be involved in the administration and implementation of the settlement.

2. Each trust will issue a promissory note each year to its beneficiary, in an amount equal to the income of the trust. The beneficiary will have a right to enforce payment on demand.

3. The allocations under the partnership agreement are consistent with the partners' interest in the funds that will be placed into the partnership.

XXXXXXXXXX							971180
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sirs:

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX in which you requested us to confirm for the Applicants the rulings we provided in our letter of XXXXXXXXXX, 1997 identified as #964206 (the "Ruling Letter"), taking into consideration the latest version of the relevant agreements as well as various amendments to the description of the facts and proposed transactions in the Ruling Letter. Those amendments, while numerous, do not affect the original substance, intent or our understanding of the proposed transactions as set out in the Ruling Letter. For ease of presentation, we hereby cancel the above-noted Ruling Letter in its entirety and replace it with this letter. We acknowledge our related conversations.

You advised us that, to the best of your knowledge and the knowledge of the taxpayers involved:

(a) none of the issues involved in the requested rulings have been considered by a taxation services office or taxation centre in connection with a tax return already filed, and

(b) none of the issues involved in the requested rulings is under objection or appeal.

EXHIBITS:

The following documents were submitted in conjunction with the ruling request:

(a) a copy of the General Agreement, undated, identified as "Final Draft";

(b) a copy of the model Trust Agreement, undated, entitled "XXXXXXXXXX";

(c) a copy of the model Partnership Agreement, dated XXXXXXXXXX; and

(d) a copy of the model Treaty Entitlement Agreement, undated.

DEFINITIONS:

In this letter:

(a) "Acquire" and "Acquisition" have the meanings set out in the General Agreement;

(b) "Act" means the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.) as amended to the date of this letter;

(c) "Applicants" means the Company, the Partnership, the Entitlement First Nations and the Trusts;

(d) "Authorized Expenses" means the expenses a Trust is authorized to pay from its account(s), as more particularly described in the Trust Agreement;

(e) "Canada" means Her Majesty the Queen in Right of Canada;

(f) "XXXXXXXXXX" ("Account C") means the account so titled to be established by the Partnership in accordance with the General Agreement;

(g) "Council" means, in respect of the Entitlement First Nation, the "council of the band" as defined in subsection 2(1) of the Indian Act;

(h) "Council Resolution" means a written resolution signed by a quorum of the Council of an Entitlement First Nation adopted at a duly convened meeting of the Council;

(i) "Crown Land" means certain land owned by or under the administration and control of the Province as more particularly described in the General Agreement;

(j) "Entitlement First Nations" means the First Nations listed on Appendix 1, and "Entitlement First Nation" means any one of them;

(k) "XXXXXXXXXX" ("F Payment") means, in respect of an Entitlement First Nation, those monies to be paid to the Trust for the benefit of that Entitlement First Nation to establish that Trust in accordance with the General Agreement and its Treaty Entitlement Agreement to be held and invested by the Trustees and distributed to that Entitlement First Nation for its development in accordance with the Trust Agreement, as more particularly described in the General Agreement;

(l) "First Nation" means a "band" as defined in subsection 2(1) of the Indian Act;

(m) "XXXXXXXXXX" ("General Agreement") means the agreement so titled to be entered into among the Company (XXXXXXXXXX on behalf of the Partnership), the Province and Canada;

(n) "XXXXXXXXXX" ("Account I") means the account so titled to be established by the Partnership in accordance with the General Agreement;

(o) "Income", in respect of each account maintained by a Trust for a year, means all of the income derived from the property of the Trust held in that account for that year calculated in accordance with the Act without reference to subsection 104(6) of the Act, as more particularly described in the Trust Agreement;

(p) "Indian Act" means the Indian Act, R.S.C. 1985, c. I-5, as amended, and the regulations made pursuant to that Act;

(q) "XXXXXXXXXX" ("L Payment") in respect of an Entitlement First Nation, means those monies to be paid to the Trust for the benefit of that Entitlement First Nation to establish that Trust in accordance with the General Agreement and its Treaty Entitlement Agreement to be held and invested by the Trustees and distributed to the Entitlement First Nation in accordance with the Trust Agreement to enable it to acquire Other Land, as more particularly described in the General Agreement;

(r) XXXXXXXXXX;

(s) "Member", in respect of an Entitlement First Nation, means "member of a band" as defined in subsection 2(1) of the Indian Act, and "Members" means the group of persons each of whom is a Member;

(t) "Members' Resolution" means a resolution of Members as more particularly described in the Trust Agreement;

(u) "Other Land" means, in respect of an Entitlement First Nation, land which is held by private persons (and, in some limited circumstances, federal and provincial land) which the Entitlement First Nation intends to Acquire and to have set apart as Reserve in accordance with the General Agreement and its Treaty Entitlement Agreement, as more particularly described in the General Agreement;

(v) "Partnership Agreement" means the agreement that evidences the Partnership among the Company and the Entitlement First Nations that execute Treaty Entitlement Agreements;

(w) "reserve" means "reserve" as defined in subsection 2(1) of the Indian Act;

(x) "Reserve" means a reserve set apart for the use and benefit of a particular Entitlement First Nation;

(y) "Select" and "Selection" have the meanings set out in the General Agreement;

(z) "XXXXXXXXXX" (the "Company") means XXXXXXXXXX;

(aa) "XXXXXXXXXX" (the "Partnership") means the limited partnership to be formed by the Company and one of the Entitlement First Nations by the Partnership Agreement made under the XXXXXXXXXX Act (XXXXXXXXXX) that will provide as follows:

a. the Company will be the general partner and will be authorized to manage the business and affairs of the Partnership;

b. no person other than the Company will be permitted to be the general partner;

c. one of the Entitlement First Nations will be the only initial limited partner and will subscribe for 1,000 limited partnership units (which units may be repurchased by the limited partnership at the subscription price if the Entitlement First Nation does not subscribe for additional units);

d. the limited partnership capital will be unitized and the limited partnership will be authorized to issue XXXXXXXXXX limited partnership units at a price of $0.0001 per unit;

e. only Entitlement First Nations that execute Treaty Entitlement Agreements will be permitted to be limited partners, and the number of units each will be permitted to subscribe for will be that number of units that is equal in number to the number of acres that is the maximum number of acres that may be set apart as Reserve for that Entitlement First Nation as described in the General Agreement;

f. the allocation of the income and losses of the limited partnership will be as follows:

		General Partner	0.0001%
		Limited Partners	99.9999%;

g. the allocation of income and losses among the limited partners will be in accordance with each limited partner's proportionate number of limited partnership units held;

h. no cash distributions to the limited partners or the general partner will be permitted except in the circumstances contemplated by subsections XXXXXXXXXX of the General Agreement after the date when the maximum number of acres for each Entitlement First Nation that executes a Treaty Entitlement Agreement has been set apart as Reserve or the date which is XXXXXXXXXX years after the date the General Agreement is executed, whichever is earlier;

i. the Company will be authorized as general partner, to perform all of the functions and fulfill all of the obligations contemplated for the limited partnership in the General Agreement, including the receipt and disbursement of funds out of Account C, Account I and Account T, on its behalf;

j. limit the activities of the limited partnership and the Company as its general partner to performing the functions and fulfilling the obligations contemplated for the limited partnership in the General Agreement;

k. ensure that the limited partnership will not be dissolved or terminated until the later of the date referred to in clause XXXXXXXXXX and the date when the General Agreement and the Treaty Entitlement Agreement of each Entitlement First Nation that executes a Treaty Entitlement Agreement is fully implemented; and

l. the limited partnership will be registered under the XXXXXXXXXX Act (XXXXXXXXXX) and will be maintained in good standing;

(bb) XXXXXXXXXX;

(cc) "Treaty Entitlement Agreement" means an agreement among a particular Entitlement First Nation, the Company on behalf of the Partnership, Canada and the Province pursuant to which that Entitlement First Nation agrees, among other things, to accept the terms of the General Agreement;

(dd) "Trust", in respect of an Entitlement First Nation, means the inter vivos trust (as defined in subsection 108(1) of the Act) to be established by Canada pursuant to the terms of the Trust Agreement and to be administered by the Trustees for the benefit of that Entitlement First Nation in accordance with the terms of the Trust Agreement, and "Trusts" means all of the trusts each of which is a Trust;

(ee) "Trust Agreement", in respect of an Entitlement First Nation, means an agreement between Canada and the Trustees made in accordance with the General Agreement and its Treaty Entitlement Agreement pursuant to which the Trustees agree to hold and invest certain property (including the F Payment and, if applicable, the L Payment) for the benefit of that Entitlement First Nation;

(ff) "Trustees" means, in respect of a particular Trust for the benefit of a particular Entitlement First Nation, those individuals who execute the Trust Agreement setting out the terms of the Trust, as more particularly described in the Trust Agreement; and

(gg) "XXXXXXXXXX" ("Account T") means the account so titled to be established by the Partnership in accordance with the General Agreement.

FACTS

1. The Company represents the Entitlement First Nations in negotiations with Canada and the Province in respect of certain of Canada's treaty land entitlement obligations to the Entitlement First Nations.

2. The Company is a corporation without share capital incorporated in accordance with the laws of the Province by Articles of Incorporation dated XXXXXXXXXX. Its articles were amended by Articles of Amendment dated XXXXXXXXXX.

3. The current voting members of the Company are XXXXXXXXXX and the current non-voting members are XXXXXXXXXX.

4. The current Directors and Officers of the Company are as follows:

		Directors					Office Held

XXXXXXXXXX

5. The Articles of the Company are being, or have been, amended to replace the existing objects with the following objects:

XXXXXXXXXX.

6. The purposes described in the By-laws of the Company are being, or have been, similarly amended and are also being amended to change the voting membership in the Company such that the voting members of the Company consist of

XXXXXXXXXX.

7. The Entitlement First Nations entered into or adhered to various Treaties (particularly, Treaty nos. XXXXXXXXXX) with Canada XXXXXXXXXX which provided, among other things, that Canada would set aside a certain amount of land as reserve lands for the First Nations. Canada has recognized that the Entitlement First Nations have not received reserve lands of sufficient area to fulfill the requirements of their Treaties with Canada.

8. The existing Treaty and aboriginal rights of First Nations are recognized and affirmed by subsection 35(1) of the Constitution Act 1992, being Schedule B of the Canada Act, 1982 (U.K.), 1982, c.11.

9. Each of the Entitlement First Nations (either itself or through its Council or otherwise) provides its members with various services. The details of community functions are described in detail in the Community Profiles and band surveys which were submitted along with selected Band Council Resolutions. Each of the Entitlement First Nations has negotiated (directly or through the Company) with Canada the agreements which are the subject of this ruling.

XXXXXXXXXX

PROPOSED TRANSACTIONS

13. The Company and one of the Entitlement First Nations will form the Partnership and execute the Partnership Agreement.

14. The General Agreement will be executed by the Company XXXXXXXXXX on behalf of the Partnership and by Canada and the Province. The General Agreement affords each of the Entitlement First Nations the ability to accept the form of settlement in respect of certain of Canada's treaty land entitlement obligations to it by entering into a Treaty Entitlement Agreement with the Company (on behalf of the Partnership), Canada and the Province. The form of the Treaty Entitlement Agreement essentially incorporates by reference the applicable terms of the General Agreement. There will be a community approval process for each of the Entitlement First Nations to ratify the Treaty Entitlement Agreement and Trust Agreement after the General Agreement is executed. None of the Entitlement First Nations will be obligated to execute a Treaty Entitlement Agreement under the terms of the General Agreement. An Entitlement First Nation that executes a Treaty Entitlement Agreement will also subscribe for its permitted number of limited partnership units in the Partnership.

15. The Partnership will be obligated to perform a variety of functions with respect to the implementation of the General Agreement including the provision of assistance to the Entitlement First Nations XXXXXXXXXX all as more particularly set out in the General Agreement.

16. Canada will pay to the Partnership in accordance with the General Agreement:

(a) a contribution towards XXXXXXXXXX

(b) a contribution towards XXXXXXXXXX

(c) a contribution towards XXXXXXXXXX

The Partnership will deposit these payments to Account C, Account T and Account I, respectively, and invest those funds in the manner described in the General Agreement.

17. The General Agreement will require the Partnership to keep Account C separate and apart from all other funds of the Partnership and will limit the investments it may make with respect to those funds. The General Agreement will entitle each Entitlement First Nation to a prescribed amount out of Account C and will also entitle each Entitlement First Nation to apply in writing for additional funds for any unforeseen or unusual but otherwise reasonable costs actually incurred by it XXXXXXXXXX or the reasonable and foreseeable costs anticipated to be incurred by it XXXXXXXXXX up to a limited amount. The Entitlement First Nations will not have legal interests in Account C other than the prescribed amounts. Administrative changes for the operation of Account C will be paid out of Account C. Funds remaining in Account C following the completion of XXXXXXXXXX will be transferred to Account I. The provisions relating to Account C are set out in Article XXXXXXXXXX of the General Agreement.

18. The General Agreement will require the Partnership to keep all contributions by Canada to Account T separate and apart from its other funds and will limit the investments it may make with those funds. The General Agreement will restrict the use of Account T to satisfying applications by Entitlement First Nations for the purposes of XXXXXXXXXX The Partnership will have absolute discretion in determining the allocations of funds in accordance with criteria set out in the General Agreement. The Entitlement First Nations will not have legal interests in Account T. Administrative charges for the operation of Account T will be paid out of Account T. The balance, if any, remaining in Account T will be distributed to the Entitlement First Nations in accordance with a formula set out in the General Agreement. The provisions relating to Account T are set out in Article XXXXXXXXXX of the General Agreement.

19. The General Agreement will require the Partnership to keep all contributions by Canada to Account I separate and apart from its other funds and limit the investments it makes with those funds. The Partnership will make disbursements out of Account I for XXXXXXXXXX The Entitlement First Nations will not have any legal interests in Account I. Administrative charges for the operation of Account I will be paid out of Account I. The balance, if any, remaining in Account I will be disbursed to the Entitlement First Nations in accordance with a formula set out in the General Agreement. The provisions relating to Account I are set out in Article XXXXXXXXXX of the General Agreement.

20. According to the Partnership Agreement, allocations of net income or net loss will be made at the end of each fiscal year of the Partnership.

21. The General Agreement sets out procedures for an Entitlement First Nation to Select Crown Land and, where insufficient or inadequate Crown Land is available to an Entitlement First Nation, to Acquire Other Land from private owners and, in limited circumstances, the federal or provincial government. It also sets out land selection and acquisition criteria which describe the area from which an Entitlement First Nation may Select Crown Land and may Acquire Other Land. The General Agreement also outlines the procedure pursuant to which the Crown Land and Other Land will be set aside as a Reserve in accordance with the Indian Act.

22. The General Agreement requires that Canada settle a Trust evidenced by a Trust Agreement for the benefit of each particular Entitlement First Nation that executes a Treaty Entitlement Agreement by payment of the F Payment and, if applicable, the L Payment to the Trustees to be held and invested in accordance with the Trust Agreement. XXXXXXXXXX The General Agreement provides that each particular Entitlement First Nation will accept the interest in its particular Trust in satisfaction of certain of Canada's Treaty land entitlement obligations to the particular Entitlement First Nation.

23. Each Trust Agreement will provide that the F Payment is to be held in trust and invested by the Trustees until certain distribution conditions are met. The F Payment will be held in trust in a separate account and distributed to the Entitlement First Nation for its development as determined by Members' Resolution. The Trustees of a Trust will only be able to distribute capital from that account XXXXXXXXXX in the manner set forth in the Trust Agreement. If a Trust is to receive an L Payment, that payment will be held in trust and invested in a separate account (the two accounts will not be commingled) until other distribution conditions are met XXXXXXXXXX and the funds in that account are transferred to the account to which the F Payment is deposited. The L Payment will be held in a separate account XXXXXXXXXX The Trustees of a Trust will only be able to distribute capital from that account XXXXXXXXXX in the manner described in the Trust Agreement. Each Trust Agreement will obligate Trustees to pay Authorized Expenses.

24. Each Trust Agreement will provide that an amount equal to the Income of each account in a Trust for a particular taxation year will be payable to the Entitlement First Nation in that particular taxation year and will be evidenced by the Trustees issuing and delivering to the Entitlement First Nation, as soon as practicable after the end of that year, a non-interest bearing, unrestricted demand promissory note in an amount equal to the Income of each account. Where a Trust has more than one account, a promissory note will be issued with respect to each account. The Trustees will be empowered to borrow funds to satisfy the payment of any such promissory notes. The ability of the Entitlement First Nation to demand payment of the promissory notes and the ability of the Trustees to honour such demand will not be restricted in any manner by any of the Trust Agreement, the General Agreement or the Treaty Entitlement Agreement.

25. A distribution of funds from an account of a Trust will be applied, first, to outstanding promissory notes and, second, to the capital of the account. The amount of a distribution will be reduced by payments of promissory notes other than payments made as a result of the application of a distribution.

26. The Trustees of each Trust will be empowered to manage the property of the Trust and, specifically, will have the power and responsibility to invest the capital of the Trust within the parameters set forth in the Trust Agreement and to borrow funds make distributions or pay the amount owing under promissory notes to the particular Entitlement First Nation against the security of the property of the Trust. The Trustees will also be empowered to select the financial institution to be used by the Trust.

27. Five Trustees of each Trust will initially be named as trustees in the Trust Agreement. Thereafter, four Trustees will be appointed by the Members of the particular Entitlement First Nation, and the fifth Trustee will be appointed by the Council of the particular Entitlement First Nation.

PURPOSES OF THE TRANSACTIONS

The purposes of the Proposed Transactions are:

(a) generally, to provide for the settlement of certain Treaty land entitlement obligations of Canada to the Entitlement First Nations as set out in the General Agreement;

(b) specifically, to provide Account C, Account T and Account I to facilitate the objectives set out in the General Agreement; and

(c) specifically, to provide a Trust for the benefit of each Entitlement First Nation in settlement of certain treaty land entitlement obligations of Canada to each Entitlement First Nation, the purpose of which Trust is to provide funds to each Entitlement First Nation the land requirements of which will not be met with selections of Crown Land, to enable it to Acquire Other Land to be set aside as a Reserve and to provide for the development of each Entitlement First Nation in the manner determined by its Members.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and the purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our rulings are as follows:

A. Each Trust will be entitled to deduct under paragraph 104(6)(b) of the Act the Income payable to an Entitlement First Nation as described in paragraph 24 above.

B. In any year in which an Entitlement First Nation continues to provide community services of the type and magnitude referred to in paragraph 9 above and is involved in the implementation of its settlement, that Entitlement First Nation will be considered to be a public body performing a function of government in Canada within the meaning of paragraph 149(1)(c) of the Act and, accordingly, no tax will be payable under Part I by that Entitlement First Nation on any Income of a Trust in a year that is included in that Entitlement First Nation's income by virtue of paragraph 12(1)(m) of the Act or on any Partnership income included in that Entitlement First Nation's income by virtue of paragraph 12(1)(l) of the Act.

C. Provided that the Partnership is a partnership at law, the provisions of subsections 103(1) and (1.1) of the Act will not be applied so as to alter the allocation of income or loss of the Partnership as described herein.

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 issued by Revenue Canada on December 30, 1996, and are binding provided that the General Agreement is executed by the Company, the Province and Canada by XXXXXXXXXX.

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.

The above rulings are also based on the version of the four agreements described above under the caption "Exhibits". Any substantive difference between these versions and the final versions could invalidate the rulings.

Yours truly,

A/Chief
Business, Property and Employment Section I
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch