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.
Principal Issues: 1. Is the First Nation a public body performing a function of government for purposes of paragraph 149(1)(c) of the Act?
2. Is the income of the trust from the settlement payment attributed back to the First Nation by subsection 75(2) of the Act?
Position: 1. Yes.
2. Yes.
Reasons: 1. The First Nation performs many functions of government and is accountable to its members.
2. The First Nation is settlor and income and capital beneficiary of the trust.
XXXXXXXXXX
2011-039183
XXXXXXXXXX
XXXXXXXXXX , 2011
Dear XXXXXXXXXX :
Re: Advance Income Tax Ruling - XXXXXXXXXX (the "First Nation")
This is in reply to your letter of XXXXXXXXXX , in which you requested an advance income tax ruling on behalf of the above-named taxpayer. We acknowledge the additional submissions of XXXXXXXXXX , and the information provided during various telephone conversations and emails (XXXXXXXXXX ).
We understand that, to the best of your knowledge and that of the taxpayer, none of the issues involved in the ruling request are:
(i) in an earlier return of the taxpayer or a related person,
(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person,
(iii) under objection by the taxpayer or a related person,
(iv) before the courts, or
(v) the subject of a ruling previously issued by the Directorate to the taxpayer or a related person.
Unless otherwise stated, all references to a statute are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date of this ruling letter (the "Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
DEFINITIONS:
In this letter, the following terms have the following meanings:
(a) "Administrative Trustee" means a trust company, appointed pursuant to the terms of the Trust Agreement;
(b) "Annual Income" means the greater of:
(i) all of the income for Canadian federal income tax purposes derived from Trust Property held in or purchased with funds from the Trust Account; and
(ii) the amount that is XXXXXXXXXX per cent of the market value of the Authorized Investments held in the Trust Account as at XXXXXXXXXX in each year;
(c) "XXXXXXXXXX " means a non-interest bearing loan from the Trust in favour of the Beneficiary in the sum of $XXXXXXXXXX , to be repaid in equal amounts over XXXXXXXXXX years from Annual Income, and which is to be used exclusively by the First Nation for the purpose of capital improvements to the XXXXXXXXXX facilities on the Reserves;
(d) "Authorized Investment" means an investment purchased with funds from the Trust Account as selected by an investment manager in accordance with the terms of the Trust Agreement;
(e) "Beneficiary" means the First Nation;
(f) "Canada" means Her Majesty the Queen in Right of Canada, as represented by the Minister of Aboriginal Affairs and Northern Development;
(g) "Chief" means the duly elected Chief of the First Nation;
(h) "Community Trustee" means an eligible Member appointed in accordance with the provisions of the Trust Agreement;
(i) "Council" means the duly elected Chief and council of the First Nation;
(j) "Federal Payment" means the payment received by the First Nation from Canada pursuant to the Settlement Agreement and as described in paragraph 17 of this ruling letter;
(k) "INAC" means Aboriginal Affairs and Northern Development Canada, formerly know as Indian and Northern Affairs Canada;
(l) "Indian Act" means the Indian Act, R.S.C. 1985, c.I-5, as amended, and the regulations pursuant to the Indian Act;
(m) "Initial Capital" means the Federal Payment less any amounts withdrawn to pay outstanding expenses incurred by Council in relation to the negotiation, settlement and ratification of the XXXXXXXXXX ;
(n) "Initial Settled Property" means the amount of $XXXXXXXXXX received by the Trustees from the First Nation to settle the Trust;
(o) "XXXXXXXXXX ;
(p) "Member" means a person registered from time to time as a member of the First Nation on the XXXXXXXXXX list maintained pursuant to the Indian Act or under XXXXXXXXXX membership code;
(q) "Reserves" means the First Nation's reserves as described in paragraph 3 of this ruling letter, which are "reserves" as defined in subsection 2(1) of the Indian Act;
(r) "Settlement Agreement" means the agreement made between the First Nation and Canada and ratified by Members on XXXXXXXXXX
(s) "XXXXXXXXXX " means the settlement reached between the First Nation and Canada on XXXXXXXXXX
(t) "Trust" means the trust established pursuant to the terms of the Trust Agreement for the benefit of the Beneficiary, known as the XXXXXXXXXX ;
(u) "Trust Account" means all of the accounts established by the Administrative Trustee for the management of the Trust Property;
(v) "Trust Agreement" means the agreement made between the First Nation and the Trustees ratified by the eligible Members on XXXXXXXXXX;
(w) "Trust Property" means the Initial Capital and all monies and receivables now or hereafter on deposit in the Trust Account, including any and all investment instruments in which the monies in the Trust Account may from time to time be invested, as well as any capital contributions as directed by Council, any additions or accruals thereto, and also includes all interest revenue and other income realized but excluding all amounts which have been paid or disbursed therefrom in the normal course of the administration of or pursuant to the provisions of the Trust Agreement;
(x) "Trustees" means the Community Trustees and the Administrative Trustee collectively.
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
FACTS:
1. The First Nation is a "band" as defined in subsection 2(1) of the Indian Act.
2. The mailing address for the First Nation is XXXXXXXXXX . The First Nation is served by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Tax Centre. The First Nation's business identification number is XXXXXXXXXX .
3. The First Nation has XXXXXXXXXX reserves, which are located entirely in the Province of XXXXXXXXXX . The Reserves are comprised of approximately XXXXXXXXXX acres of land. The main community (XXXXXXXXXX ) is where the majority of Members reside and consists of XXXXXXXXXX acres. XXXXXXXXXX urban reserve consists of approximately XXXXXXXXXX acres.
4. The First Nation has XXXXXXXXXX Members of whom approximately XXXXXXXXXX live on the Reserves.
5. The First Nation is represented by the Council. The First Nation currently conducts its elections through customary practice. The First Nation is affiliated with the XXXXXXXXXX and is a member of the XXXXXXXXXX .
6. The First Nation, through the Council, is responsible for the development, maintenance, and operation of diverse public works and for the delivery of education, health and social programming for Members residing both on and off the Reserves. Council has a long-term development plan as well as a XXXXXXXXXX -year capital plan. Council is supported by a developed administrative structure. The administration is comprised of numerous departments, specifically:
XXXXXXXXXX
Each department has established policies and procedures and is managed by a program director who reports to a designated member of Council and who is also ultimately accountable to the Members through Council.
7. XXXXXXXXXX
8. XXXXXXXXXX
9. The First Nation owns and operates a school on the Reserves. The academic programs are mandated by the XXXXXXXXXX provincial curriculum. The total student population from XXXXXXXXXX . XXXXXXXXXX .
10. XXXXXXXXXX
11. The First Nation delivers child and family services in the community under an agreement with XXXXXXXXXX .
12. The First Nation delivers a comprehensive range of social programs for Members of the community including
- financial social assistance;
- elder care;
- home care;
- work opportunities;
- community outreach;
- addiction abuse assistance; and
- social housing.
13. The First Nation administers various health services programs under its funding agreement with INAC including
- Non-insured Health Benefits;
- Environmental Health;
- Aboriginal Diabetes Initiative;
- First Nation Home and Community Care;
- Aboriginal Headstart;
- Canada Prenatal Nutrition;
- Fetal Alcohol Syndrome; and
- Integrated Health Services.
14. The First Nation funds, operates and maintains numerous community facilities including
XXXXXXXXXX
15. The First Nation operates a public works department, which maintains the community infrastructure on Reserves. This includes:
XXXXXXXXXX
16. The First Nation was previously involved in the negotiation of XXXXXXXXXX , which addressed the rights of the First Nation to acquire certain land. The First Nation received $XXXXXXXXXX as a result of XXXXXXXXXX , which was settled in a trust to be used to purchase additional lands. XXXXXXXXXX
17. XXXXXXXXXX established a process to resolve issues with respect to entitlement to and quantum of amounts for the loss of use of the lands that were the subject of XXXXXXXXXX . As a result of that process, the First Nation has agreed to a loss of use settlement with Canada, the terms of which have been set out in the Settlement Agreement. Pursuant to the Settlement Agreement, Canada will pay the Federal Payment to the First Nation which will be a sum of not less than $XXXXXXXXXX .
PROPOSED TRANSACTIONS:
18. Pursuant to the terms of the Trust Agreement, the First Nation will settle the Trust with the Initial Settled Property.
19. The Trust Agreement will require that at all times there shall be one Administrative Trustee and XXXXXXXXXX Community Trustees appointed or elected in accordance with the terms of the Trust Agreement.
20. The First Nation will irrevocably direct Canada to deposit the Federal Payment, on the First Nation's behalf, to the Trust. Subject to terms and conditions of the Trust Agreement, the Federal Payment is to be administered by the Trustees as a long-term asset for the future benefit of the First Nation.
21. The Initial Capital, and other contributions deposited in the Trust Account will be invested in Authorized Investments, subject to certain distributions to the First Nation and other terms and conditions of the Trust Agreement.
22. The Trust Agreement will authorize the Trustees to make certain distributions, in particular:
(i) an initial capital distribution to the Beneficiary to distribute to Members pursuant to Article XXXXXXXXXX ;
(ii) XXXXXXXXXX ; and
(iii) capital encroachments as requested by the Council in its capacity as agent for the Beneficiary, pursuant to Article XXXXXXXXXX .
23. The Trust Agreement will specify that Trust Property will only be used for the following purposes:
(i) to transfer Annual Income to the First Nation as specified in the Trust Agreement;
(ii) to allow the distributions referred to in paragraph 22 of this ruling letter;
(iii) to purchase Authorized Investments
(iv) to pay authorized expenses as defined in the Trust Agreement; and
(v) for purposes otherwise expressly authorized in the Trust Agreement.
PURPOSE OF THE PROPOSED TRANSACTIONS:
The purpose of the proposed transactions is to establish the Trust to administer the Federal Payment and to facilitate the objectives set out in the Trust Agreement to ensure that the Federal Payment is a long-term asset for the use and benefit of the First Nation and its Members.
RULINGS GIVEN:
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, we rule as follows:
A. Because the First Nation is considered a public body performing a function of government in Canada within the meaning of paragraph 149(1)(c) of the Act, and therefore exempt from tax under Part I of the Act, no tax will be payable under Part I of the Act by the First Nation with respect to
(i) the Federal Payment; and
(ii) any amounts included in the income of the First Nation as a result of the application of subsection 75(2) of the Act.
B. Subsection 75(2) of the Act will apply to
(i) the income or loss from the property received by the Trust from the First Nation, including the Initial Settled Property and the Federal Payment directed into the Trust by the First Nation,
(ii) the income or loss from any property substituted for the property described in (i) above, and
(iii) any taxable capital gain or allowable capital loss from the disposition of the property or substituted property described in (i) and (ii) above, and
such income, loss, taxable capital gain or allowable capital loss will be that of the First Nation and not the income, loss, taxable capital gain or allowable capital loss of the Trust.
The above advance income tax rulings, which are based on the Act and Regulations in their present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R5, "Advance Income Tax Rulings", dated May 17, 2002, and are binding on the Canada Revenue Agency ("CRA") provided that the proposed transactions are completed by XXXXXXXXXX .
The rulings given above are based solely on the facts and proposed transactions described above. Nothing in this ruling letter should be construed as implying that the CRA has reviewed or is making a determination or ruling in respect of any tax consequences in relation to any facts or proposed transactions referred to herein other than those specifically described in the rulings given.
In particular, nothing in this ruling letter should be construed as implying that the CRA is giving an opinion on the transfer of the Trust Property to any new trust as described in Article XXXXXXXXXX of the Trust Agreement.
The documentation submitted with your request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader.
Yours truly,
XXXXXXXXXX
Manager
Non-Profit Organizations and Aboriginal Issues Section
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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