30 October 1998 External T.I. 9805985 - CANADIAN MUNICIPAL OWNED CORPORATION INDIAN

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: interpretation of geographic boundaries and computation of income for purposes of exemption from tax under 149(1)(d) for Indian band

Position: geographic boundaries means reserve boundaries, income is net income

Reasons: geographic boundaries of Indian exemption as previously interpreted, income as computed under the Income Tax Act.

XXXXXXXXXX 980598
R. Albert, CA
October 30, 1998

Dear XXXXXXXXXX:

Re: Amendments to paragraph 149(1)(d) of the Income Tax Act (the "Act")

We are writing in response to your February 19, 1998, letter to Mr. Marion of the Department of Finance. You wrote to him, on behalf of the XXXXXXXXXX concerning amendments to paragraph 149(1)(d) of the Act. Mr. Marion forwarded your letter to us for reply, as Revenue Canada is responsible for the interpretation of the Act. At the time of your writing, Bill C-28, which contained these amendments, was proposed legislation. This bill received Royal Assent on June 18, 1998, and is now law.

You requested the following regarding the amendments to paragraph 149(1)(d):

1. an interpretation of what categories of land would be included in the expression 'geographical boundaries';

2. whether contracts signed with the federal, provincial or municipal governments under which a portion, or the whole, of a contract has to be carried out outside of the geographical boundaries of the reserve would be considered within the geographical boundaries of the reserve; and

3. confirmation that the definition of income does not include 'grants' wherever that 'body' that pays the grant is located.

Our Comments

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter on an advance ruling request. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R3 dated December 30, 1996. However, we are prepared to provide the following comments which are not binding on the Department.

Section 149 of the Act exempts from Part I tax, the taxable income of a person for a period when the person qualifies within the requirements of that section. Specifically, paragraph 149(1)(d.5) provides an exemption when subject to subsection (1.2) and (1.3) a corporation, commission or association not less than 90% of the capital of which was owned by one or more municipalities in Canada, if the income for the period of the corporation, commission or association from activities carried on outside the geographical boundaries of the municipalities does not exceed 10% of its income for the period.

To qualify within this exemption, the corporation, commission or association must be at least 90% owned by one or more municipalities. The XXXXXXXXXX would have to be considered to be a municipality for purposes of paragraph 149(1)(c) in order for a corporation that they own to be eligible for a paragraph 149(1)(d.5) exemption.

1. Geographical Boundaries

In our view, in the case of an Indian band that is a municipality, geographical boundaries would encompass reserve lands. Reserve lands are defined for purposes of the Indian Act to include any settlements deemed to be reserves for purposes of the Indian Settlements Remission Order and any other areas given similar treatment under federal legislation XXXXXXXXXX.

2. Contracts signed with federal, provincial or municipal governments

Pursuant to subsection 149(1.2), income from activities carried on outside the geographical boundaries of a municipality does not include income from activities carried on under an agreement in writing between a municipal corporation, commission or association and another level of government that are carried on inside the geographical boundaries of those governments that are party to the agreement.

3. Computation of Income

Paragraph 149(1)(d.5) requires that the income for the period of the corporation, commission or association from activities carried on outside the geographical boundaries of the municipalities not exceed 10% of its income for the period. You inquired whether grants would be included in the definition of income. The preamble of section 149 states "no tax is payable under this Part on the taxable income...". Section 9 of the Act computes income for a taxation year as the taxpayer's 'profit from that business or property for the year' and this would include grants.

However, in our view, income from 'activities carried on outside the geographical boundaries' would not include grants received that did not relate to activities carried on, or that related to activities that were not carried on outside the geographical boundaries of the municipality.

We trust that these comments will be of assistance.

Yours truly,

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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