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 Issues:
A. Whether XXXXXXXXXX are municipalities.
B. Whether XXXXXXXXXX can be considered to be a municipality in Canada for the purposes of paragraph 149(1)(c) of the Income Tax Act.
C. Whether a corporation the XXXXXXXXXX Settlements and XXXXXXXXXX own is exempt from Part I tax under paragraph 149(1)(d.5) of the Act.
D. Whether elected councilors of each Settlement and elected officers of the XXXXXXXXXX are elected officers of an incorporated municipality.
Position:
A. In the particular circumstances, Yes
B. In the particular circumstances, Yes
C. Unable to rule
D. Unable to rule
Reasons:
A. Councils have the authority to make by-laws respecting the geographic area of a Settlement and may make by-laws concerning a number of areas typical of municipalities including general governance; health, safety and welfare of Settlement residents; public order and safety; fire protection; nuisance and pest control; animal control; refuse disposal; public health; parks and recreation; regulation of businesses; and land use, water and sewer. Each of the Settlements have enacted a number of By-laws within their jurisdiction
B. The XXXXXXXXXX has created a number XXXXXXXXXX Policies with respect to the governance of the Settlements. Policies respecting utilization of Settlement resources and property taxation also have been implemented. The XXXXXXXXXX has also created various other policies containing model by-laws of general application to all of the Settlements.
C. Whether the corporation's income from activities carried on outside the geographical boundaries of the "municipality" for a particular period exceeds 10% of its income for the period is a question of fact on which we are unable to rule.
D. If the Settlement Councils and the XXXXXXXXXX are municipalities elected officers thereof are elected officers of an incorporated municipality for the purposes of determining whether an allowance is exempt from tax under paragraph 81(3)(a) of the Act.
XXXXXXXXXX
XXXXXXXXXX 3-980411
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1999
Dear Sirs:
Re: Advance Income Tax Ruling Request
This is in reply to your letters dated XXXXXXXXXX requesting an advanced income tax ruling on behalf of XXXXXXXXXX.
We understand that, to the best of the knowledge of XXXXXXXXXX, none of the issues involved in the requested ruling are being considered by a local tax service office or tax center in connection with a tax return already filed and none of the issues are the subject of a Notice of Objection.
Our understanding of the facts and proposed transactions are as follows:
1. The following definitions apply in respect of the ruling. Singular shall be read as plural and vice versa where the circumstances require.
a) XXXXXXXXXX;
b) "Act" means the Income Tax Act (Canada), RSC 1985, c.1 (5th Supp.), as amended;
c) "Co-management Agreement" means the agreement appended as XXXXXXXXXX;
d) "Council" means a "Settlement council" as that term is defined in XXXXXXXXXX;
e) "Councilor" means a councilor of a Council;
f) "Development Agreement" means a Development Agreement as defined in XXXXXXXXXX of the Co-management Agreement;
g) XXXXXXXXXX;
h) "ETA" means Part IX of the Excise Tax Act, RSC 1985, c. E-15, as amended;
i) XXXXXXXXXX;
j) XXXXXXXXXX;
k) "XXXXXXXXXX" means a Settlement;
l) XXXXXXXXXX;
m) "Participation Option" means a Participation Option as defined in XXXXXXXXXX of the Co-management Agreement;
n) XXXXXXXXXX; and
o) "Settlement" means a "Settlement" as defined in XXXXXXXXXX.
2. The following Settlements were incorporated under XXXXXXXXXX:
XXXXXXXXXX.
3. Each of the Settlements was established as a corporation pursuant to XXXXXXXXXX.
4. Each Settlement consists of the individuals who are members of that Settlement.
5. Each Council governs its respective Settlement.
6. Councilors are elected by popular vote among Settlement members at annual elections held by the Settlement, pursuant to XXXXXXXXXX.
7. XXXXXXXXXX.
8. XXXXXXXXXX.
9. The Officers must be Settlement members that are not Councilors. The Officers are elected by the Councils, each of which has one vote.
Authority
10. Councils have the authority to make by-laws respecting the geographic area of a Settlement pursuant to XXXXXXXXXX.
11. Councils may make by-laws concerning a number of areas typical of municipalities as set out in XXXXXXXXXX. Such areas of competence in decision-making include, inter alia, the following:
a) general governance;
b) health, safety and welfare of Settlement residents;
c) public order and safety;
d) fire protection;
e) nuisance and pest control;
f) animal control;
g) refuse disposal;
h) public health;
i) parks and recreation;
j) regulation of businesses; and
k) land use, water and sewer.
12. By-laws created by a Settlement cannot be inconsistent with XXXXXXXXXX.
13. XXXXXXXXXX:
a) XXXXXXXXXX
b) XXXXXXXXXX
c) XXXXXXXXXX
d) XXXXXXXXXX
e) XXXXXXXXXX
f) XXXXXXXXXX
14. XXXXXXXXXX.
15. XXXXXXXXXX.
Extent to which Authority has been Exercised.
16. The authority to make By-laws and Policies granted under the XXXXXXXXXX has been acted upon to a considerable degree by each of the Settlements and XXXXXXXXXX.
Settlements
17. Each of the Settlements have enacted a number of By-laws within their jurisdiction. For example, By-laws have been created with respect to borrowing, animal control, use of firearms, hunting, fishing, creation of fire departments, and refuse disposal, among others.
XXXXXXXXXX
18. XXXXXXXXXX.
19. XXXXXXXXXX.
20. Copies of the following XXXXXXXXXX were attached to the ruling request:
Policy Policy Number
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
21. Of the above policies, XXXXXXXXXX contain model by-laws of general application to all of the Settlements. In addition, XXXXXXXXXX is presently under review, and likely will be re-enacted with a model by-law.
22. XXXXXXXXXX.
23. XXXXXXXXXX was incorporated under the XXXXXXXXXX.
24. XXXXXXXXXX has XXXXXXXXXX voting common shares issued and outstanding. Each of the Settlements presently holds XXXXXXXXXX of such XXXXXXXXXX voting common shares. XXXXXXXXXX also has authorized share capital consisting of an unlimited number of XXXXXXXXXX non-voting common, XXXXXXXXXX voting preferred and XXXXXXXXXX non-voting preferred shares. None of the XXXXXXXXXX shares have been issued or are outstanding. Copies of the securities ledgers (XXXXXXXXXX) were submitted with the ruling request.
25. XXXXXXXXXX.
26. Attached to and incorporated into the XXXXXXXXXX thereto is a Co-management Agreement as between the XXXXXXXXXX and each of the Settlements (XXXXXXXXXX of the ruling request). Generally, the Co-management Agreement provides a framework by which the XXXXXXXXXX and a Settlement can negotiate an agreement with a third party to XXXXXXXXXX.
27. XXXXXXXXXX.
28. The terms and conditions in respect of which XXXXXXXXXX and the affected Settlement have input generally include the following:
a) XXXXXXXXXX
b) XXXXXXXXXX
c) XXXXXXXXXX
29. Generally, pursuant to Development Agreements entered into, the following are reserved to the XXXXXXXXXX:
a) XXXXXXXXXX
b) XXXXXXXXXX
30. XXXXXXXXXX.
31. XXXXXXXXXX:
a) XXXXXXXXXX
32. XXXXXXXXXX:
a) XXXXXXXXXX
b) XXXXXXXXXX
c) XXXXXXXXXX
33. XXXXXXXXXX.
Additional Facts
34. Each of the Settlements, and the XXXXXXXXXX, has been designated as a municipality pursuant to section 123 of the ETA.
35. XXXXXXXXXX.
36. No person other than a Settlement has a right under a contract, in equity or otherwise, either immediately or in the future and either absolutely or contingently, to, or to acquire, shares of capital of XXXXXXXXXX.
37. Each of the Settlements has jurisdiction over Settlement lands.
38. XXXXXXXXXX.
PROPOSED TRANSACTIONS
39. XXXXXXXXXX:
a) XXXXXXXXXX
b) XXXXXXXXXX
c) XXXXXXXXXX
i) XXXXXXXXXX
ii) XXXXXXXXXX
iii) XXXXXXXXXX
40. XXXXXXXXXX.
PURPOSE OF PROPOSED TRANSACTIONS
41. The purpose of the Proposed Transactions XXXXXXXXXX, is to permit the XXXXXXXXXX to focus on its roles as a government and regulator, and to move other functions to more appropriately structured institutions XXXXXXXXXX.
42. Confirmation of the tax exempt status of the XXXXXXXXXX, Settlements and XXXXXXXXXX will permit the XXXXXXXXXX and Settlements to structure joint ventures in an appropriate manner and to focus on their legislative purpose.
RULINGS GIVEN
Provided that the preceding statement constitutes a complete and accurate disclosure of all of the relevant facts, proposed transactions, and purpose of the proposed transactions and provided further that the proposed transaction is carried out as described above our ruling is as follows:
A. In any period during which the XXXXXXXXXX Settlement has the authority respecting the geographic area of the Settlement and has, and has acted or previously acted on, the authority to enact by-laws concerning the areas typical of a municipality such as those described in 10 and 11 above, the Settlement will be considered to be a municipality in Canada within the meaning of paragraph 149(1)(c) and, accordingly, the income that the Settlement will derive as a result of the XXXXXXXXXX Agreement for the period will be exempt from tax under Part I of the Income Tax Act.
B. In any period during which the XXXXXXXXXX has, and has or has previously acted on, the authority to make policies such as those described in 13 above with respect to the governance of the Settlements, the XXXXXXXXXX will be considered to be a municipality in Canada within the meaning of paragraph 149(1)(c) and, accordingly, the income that the XXXXXXXXXX will derive as a result of the XXXXXXXXXX Agreement for the period will be exempt from tax under Part I of the Income Tax Act.
The rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 31, 1996 and are binding provided that, with respect to XXXXXXXXXX is implemented on or before XXXXXXXXXX.
Whether the other XXXXXXXXXX Settlements are municipalities in Canada for purposes of paragraph 149(1)(c) of the Act, whether XXXXXXXXXX is a corporation exempt from Part I tax pursuant to paragraph 149(1)(d.5) of the Act and whether Councilors of each Settlement and elected officers of the XXXXXXXXXX are elected officers of an incorporated municipality are questions of fact on which we cannot rule. Nevertheless, we are prepared to offer the following comments which are of a general nature and are not binding on the Department.
Settlements as Municipalities
The term municipality is not defined in the Act. However, in Otineka Development Corp. V. The Queen 94 DTC 1234, the Tax Court of Canada concluded that, since there is no definition of a "Canadian municipality" in the Act, the term must be given its ordinary meaning and is not to be solely determined by the provincial legislation governing municipalities. In the Court's views, the powers conferred under the Indian Act and their exercise by The Pas Indian Band created a form of self-government that is an essential attribute of a municipality. In that case, the band had passed by-laws to regulate water, garbage disposal, weed control, domestic animal control, law and order, housing and many others. It also provided services to band members such as education, health care, social services, employment and training, counseling and economic development. The First Nation had passed bylaws under both sections 81 and 83 of the Indian Act and it provided considerable services to its members. The court determined that if the First Nation is "a community having and exercising powers of self government and providing the type of service customarily provided by such a body", then it can be considered to be a municipality. Accordingly, each case is a question of fact.
We understand that the XXXXXXXXXX Settlements each have the authority to enact by-laws respecting the geographic area of a Settlement and the authority to enact bylaws concerning a number of areas typical of municipalities including general governance; health, safety and welfare of Settlement residents; public order and safety; fire protection; nuisance and pest control; animal control; refuse disposal; public health; parks and recreation; regulation of businesses; and land use, water and sewer and that each of the Settlements have enacted a number of By-laws within their jurisdiction. Therefore, it would appear that, depending on the manner and the extent to which they are exercised, the powers conferred upon the Settlements XXXXXXXXXX may create a form of self-government that is an essential attribute of a municipality. Accordingly, the Settlements could be considered to be municipalities in Canada for the purposes of paragraph 149(1)(c) of the Act such that any income that they earn could be exempt from tax under Part I of the Income Tax Act.
XXXXXXXXXX
For the income of a corporation not less than 90% of the capital of which was owned by one or more municipalities (a "municipal corporation") to be exempt from tax under paragraph 149(1)(d.5), the corporation's income from activities carried on outside the geographical boundaries of the municipality must not exceed 10% of its income for the period. Whether income for a particular period is from activities and whether these activities are carried on outside the geographical boundaries of the municipality is a question of fact.
XXXXXXXXXX
Allowance for elected officers
In any year that an elected officer of an incorporated municipality receives an allowance from the municipality for expenses incident to the discharge of the officer's duties as such an officer, no amount of the allowance will be included in computing the officer's income for the year as long as the allowance does not exceed one half of the amount paid to the officer as salary or remuneration as officer during the year.
If the XXXXXXXXXX or a particular Settlement can be considered to be an incorporated municipality in a particular year, then the elected Officers of the XXXXXXXXXX and the Councilors of the Settlement may receive an allowance for expenses incident to the discharge of their duties as Councilor or Officer of up to 1/2 of their salary or remuneration from the Settlement or the XXXXXXXXXX, as the case may be, and which need not be included in computing the Officer's or the Councilor's income for the year pursuant to subsection 81(3) of the Act.
We trust that these comments will be of assistance.
Yours truly,
XXXXXXXXXX
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
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