CRA concludes that a land settlement claim received by an Indian band council or a trust formed by it would be exempted to non-Indian members when distributed to them

The federal government entered into an agreement with a band council representing a First Nation regarding the settlement of specific land claims pursuant to which the council will receive compensation for the First Nation. The members of the First Nation include individuals who were not Indians within the meaning of s. 2(1) of the Indian Act and who reside either on a reserve or off a reserve.

CRA found that compensation paid directly to the council would not be subject to tax, based on the conclusion in 2016-0645031I7 that all bands created under the Indian Act constitute exempt municipalities under s. 149(1)(c).

If the council distributed the compensation directly to band members, CRA would not consider that distribution to come from a source of income or proceeds of disposition of property by the members and, therefore, would not be included in computing their income under s. 3(a).

If the council formed a trust to distribute the compensation, the CRA would consider the compensation transferred to the trust to constitute capital to the trust, which could be distributed tax-free to the members. However, the application of s. 75(2) would need to be considered, if the trust earned any income from the compensation, as the council was both the settlor and the beneficiary of the trust.

Neal Armstrong. Summaries of 19 August 2025 External T.I. 2025-1066571E5 F under s. 149(1)(c), s. 3(a) and s. 104(13).