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.
December 22, 1998
Policy Development Division HEADQUARTERS
Ms Aileen Conway D. Duff
Director
Attention: Neil Mitchell
982893
Yukon First Nations
This is in reply to the e-mail of November 9, 1998 from Neil Mitchell requesting our comments on various questions related to the tax consequences of the Umbrella Final Agreement (“UFA”) negotiated with the Yukon First Nations. We have only dealt with those questions within our area of responsibility.
6. Chapter 20.6.8 of the UFA indicates the moratorium on collection of taxes was rescinded on the third anniversary of the effective date of settlement legislation. Chapter 20.6.9 indicates there is a remission order in place effective the same date which will eliminate all taxes not collected under the moratorium. Does Revenue Canada currently have this remission order in place?
Response: Remission Order, P.C. 1995-197, issued February 7, 1995, is the only order issued on this matter. This remission order applies to years commencing after 1984, and we have confirmed that it is the Department’s position that section 87 of the Indian Act applies to December 31, 1998 for both lands set aside as described in paragraph 3(a) of that order and to reserves in the Yukon.
9. When First Nations have a ceremonial potlatch, donations are given by family members to pay for food, headstone, casket, gifts, travel for other dignitaries (Chiefs) and individuals cooking and assisting with cooking. Individuals asked to cook and assist with cooking may not refuse. (The amount can be up to $400.00-$500.00) Is this income taxable?
Response: Business is defined in Black’s Law Dictionary as an activity or enterprise for gain, benefit, advantage or livelihood. Employment is defined in the Income Tax Act as the position of an individual in the service of another person. Whether a business or employment relationship exists would always be a question of fact, however, the Department generally would not consider either to exist where amounts are being paid simply to defray the costs incurred in arranging a social gathering.
17. Are honorariums paid by settlement corporations to committee members taxable, pensionable, and insurable?
Response: Honorariums are not defined in the Income Tax Act, however, the tenth edition of Webster’s Collegiate Dictionary defines it as a payment for a service. Honorariums are taxable as either employment or business income depending on the circumstances. If they are in respect of employment they will be included in income pursuant to subsection 5(1), and if they are considered business, they will be included in income pursuant to section 9 of the Income Tax Act.
The issue of it being pensionable and insurable should be answered by the CPP/EI Eligibility Division.
18. What will be required in regards to filing a tax return by the First Nations Governments. Will they be required to file a tax return, if so, what type of return, and what information will be required to be provided? How will this be enforced?
Response: Subsection 150(1) of the Income Tax Act requires the filing of returns by corporations, trusts and individuals as indicated therein, but there is generally no specific provision requiring other persons to file returns on a regular basis. If the government body is structured as a corporation or assets are held in a trust, the corporation or trust will be required to file returns by virtue of paragraph 150(1)(a) and (c), respectively.
Subsection 149(12) or the Income Tax Act requires certain persons exempt from income because of paragraphs 149(1)(e) and (l) to file prescribed information returns where certain income or asset limits are met. However, a First Nation Government would not likely be a person described in these paragraphs. An Indian band may be exempt from tax pursuant to paragraph 149(1)(c) of the Income Tax Act which refers to a municipality or public body performing a function of government in Canada. There is no specific requirement that a person described under this paragraph must file a return.
19 Will Revenue Canada be providing First Nations Governments with clear and concise guidelines as to permitted activities, which will ensure they meet the requirements of chapter 24.8.2 of the Umbrella Final Agreement?
Response: Paragraph 24.8.1 provides that agreements negotiated under chapter 24 of the UFA shall include provisions respecting the status of a Yukon First Nation as a municipality or public body performing the function of government or a municipal corporation under the Income Tax Act. Paragraph 24.8.2 provides that unless the parties otherwise agree, an entity in 24.8.1 shall be restricted by its enabling authority to the provision of government or other public services and shall not engage, directly or indirectly, in commercial or investment activities.
It would be a question of fact when an entity is engaging in a commercial or investment activity. The Department has no plans on issuing guidelines on this matter but it can respond to situations on a case by case basis as they arise.
22. If a First Nation person lives and works on settlement land in the Yukon for part of the year and then moves to BC for the remainder of the year, will the First Nation receive First Nation tax on the income earned in the Yukon? How will this be reported if the individual must file a BC tax return due to Province of residence on December 31?
Response: Pursuant to section 20.6 of the UFA, no First Nation person resident in the Yukon will be exempt from tax on income earned in the Yukon. Where a First Nation person moves from the Yukon during the year, we have previously given the opinion that any exemptions under the Indian Act will take effect at the time of the change in residency. Consequently, the income earned in the Yukon will remain taxable regardless of the individual’s status at the end of the year. However, as discussed in more detail below, this income may be taxed in BC instead of the Yukon.
“Income earned in the year in a province” is defined in subsection 120(4) of the Income Tax Act as the amount determined according to Regulation 2600. Where a person lived in a province or territory on the last day of the year and had no income for the year from a permanent establishment outside of the province, subsection 2601(1) of the Regulations defines his income earned in the year in a province to be his income for the year. If he did have income from a business with a permanent establishment outside the province, his income earned in the year in that province would be his income for the year less the income from that business. Also, he would have income earned in the location where the permanent establishment was situated. The British Columbia Income Tax Act basically uses the definitions in the federal Income Tax Act in determining liability, and subsection 4(1) of that act defines “income earned in the taxation year in British Columbia” as the income so determined pursuant to subsection 120(4) of the federal Income Tax Act.
In this situation, if the Yukon First Nation person lived and worked in the Yukon and his income from the Yukon consisted of employment income or business income not connected to a permanent establishment in the Yukon, and he moves to British Columbia and resides there at the end of the year, he will be considered to have earned all of his income in British Columbia. If all or part of his income earned in the Yukon was income from a business with a permanent establishment in the Yukon, then this income will be considered to be earned in the Yukon and not British Columbia.
Roberta Albert, CA
fro Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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