2010 Ruling 2010-0362371R3 - First Nation - 149(1)(c); Limited Partnership

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: Will the income of the Limited Partnership be exempt from income tax because the First Nation is a public body performing a function of government for purposes of paragraph 149(1)(c) of the Act?

Position: Yes.

Reasons: The First Nation has passed bylaws pursuant to section 81 of the Indian Act and performs several functions of government. It is governed by a XXXXXXXXXX accountable to their members and has entered into agreements with the Province of XXXXXXXXXX.

XXXXXXXXXX 						2010-036237

XXXXXXXXXX , 2010

Dear XXXXXXXXXX :

Re: Advance Income Tax Ruling Request - 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 your additional submissions of XXXXXXXXXX . We also acknowledge our various related telephone conversations (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 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) "Distributable Cash" means, for any period, the revenue from the business activities for the Limited Partnership less expenses of carrying on business, debt services, management fees and provision for the maintenance of reasonable reserves including an adequate level of working capital, and amounts set aside for deferred liabilities, contingent liabilities and other matters deemed necessary or desirable by the General Partner;

(b) "General Partner" means the XXXXXXXXXX , a corporation with share capital, duly incorporated under the XXXXXXXXXX ;

(c) "First Agreement" means the XXXXXXXXXX entered into between the First Nation and the Province on XXXXXXXXXX ;

(d) "Second Agreement" means the XXXXXXXXXX entered into between the First Nation and the Province on September 29, 2008;

(e) "Indian Act" means the Indian Act, R.S.C. 1985, c.I-5, as amended and the regulations pursuant to the Indian Act;

(f) "Member" means an individual whose name appears on the "Band List" of the First Nation, as defined in section 8 of the Indian Act and maintained by the First Nation;

(g) "Province" means Her Majesty in Right of the Province of XXXXXXXXXX ;

(h) "Reserves" means the First Nation's reserves as described in paragraph 4 of this ruling and which are "reserves" as defined in subsection 2(1) of the Indian Act;

(i) XXXXXXXXXX ; and

(j) "Tribal Council" means the XXXXXXXXXX , whose member First Nations include the First Nation and XXXXXXXXXX other Indian Bands.
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 serviced 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 approximately XXXXXXXXXX Members, of whom XXXXXXXXXX reside on the Reserves.

4. The First Nation has XXXXXXXXXX reserves located XXXXXXXXXX in XXXXXXXXXX identified as reserves XXXXXXXXXX .

5. The First Nation is governed by XXXXXXXXXX . XXXXXXXXXX are determined in accordance with band custom as approved by the Minister of Indian and Northern Affairs Canada. The council XXXXXXXXXX has all governance powers available to it under the Indian Act, and in accordance with the Indian Act, the Minister may, at his own discretion or as a result of a request from the First Nation membership, require selection of council by elections held in accordance with the Indian Act.

6. The First Nation controls its own membership pursuant to section 10 of the Indian Act.

7. XXXXXXXXXX

8. The First Nation has passed by-laws pursuant to section 81 of the Indian Act pertaining to XXXXXXXXXX .

9. XXXXXXXXXX

10. XXXXXXXXXX

11. The First Nation directly provides capital infrastructure for its Reserves and administers programs and services for its Members including:

a) community and human services, which include:

• health and community care,
• child and family welfare, family violence programs, and
• child and youth workshops;

b) social development programs, which include:

• basic and special needs,
• child and youth support benefits, and
• lunch programs and cultural activities;

c) community planning;

d) an Aboriginal justice program;

e) fisheries programs XXXXXXXXXX which include:

• monitoring of fishing, shellfish and toxin levels,
• creating, monitoring and enforcing fishing plans;

f) cultural and heritage programs; and
g) housing services.

12. The First Nation runs and administers preschool, daycare and adult education programs. The First Nation also administers public school programs and vocational training. XXXXXXXXXX

13. XXXXXXXXXX

14. The First Nation entered into the First Agreement and Second Agreement with the Province in XXXXXXXXXX . XXXXXXXXXX to the First Agreement states:

XXXXXXXXXX

15. The First Agreement and Second Agreement allow the First Nation to share in the Province's XXXXXXXXXX revenues and allow the First Nation access to XXXXXXXXXX within the First Nation's traditional territory. The agreements state that the First Nation intends to participate in any consultation with XXXXXXXXXX or XXXXXXXXXX , in relation to XXXXXXXXXX activities proposed within the First Nation's traditional territory that may lead to an infringement of the First Nation's interests.

16. The Province is making XXXXXXXXXX to the First Nation in respect of the First Agreement.

17. XXXXXXXXXX

18. XXXXXXXXXX hold all the shares of the General Partner as bare trustees for the First Nation. The directors of the General Partner are appointed by the XXXXXXXXXX .

PROPOSED TRANSACTIONS:

19. The First Nation (the "Limited Partner") and the General Partner will establish the XXXXXXXXXX Limited Partnership (the "Limited Partnership") pursuant to the provisions of the XXXXXXXXXX . The General Partner will purchase XXXXXXXXXX in the Limited Partnership for $XXXXXXXXXX and the Limited Partner will purchase XXXXXXXXXX units for $XXXXXXXXXX .

20. One of the terms of the Limited Partnership agreement will describe that all property purchased by the Limited Partnership will be property belonging to the Limited Partnership. In the event that the General Partner is required to have certain property registered in its name, the General Partner will hold such property as bare trustee for the Limited Partnership so that all rights and risks of ownership belong to the Limited Partnership.

21. XXXXXXXXXX

22. XXXXXXXXXX

23. The Limited Partnership might carry out contract XXXXXXXXXX activities with a view to a profit.

24. The income and losses of the Limited Partnership, for both accounting and income tax purposes, will be allocated to the General Partner and the Limited Partner in proportion to the number of units held by each of them.

25. Distributable Cash will be distributed annually to the General Partner and the Limited Partner in proportion to the number of units held by each of them.

PURPOSE OF THE PROPOSED TRANSACTIONS:

The purpose of the proposed transactions is to allow the First Nation to provide additional funding to meet its governance obligations to its Members by earning income from XXXXXXXXXX activities and to be protected from third party liability.

RULING GIVEN:

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purposes of the proposed transactions, we rule as follows:

Because the First Nation is 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 on income allocated to the First Nation by the Limited Partnership in respect of the XXXXXXXXXX activities carried on by the Limited Partnership as a result of the proposed transactions described above.

The above advance income tax ruling, which is based on the Act and Regulations in their present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R5, "Advance Income Tax Rulings", dated May 17, 2002, and is binding on the Canada Revenue Agency ("CRA") provided that the proposed transactions are completed by XXXXXXXXXX .

COMMENTS:

Nothing in this letter should be construed as implying that the CRA has reviewed any of the partnership agreements or the First Agreement or the Second Agreement referred to in the facts or proposed transactions set out above. In particular, this letter does not confirm that:

• the partnership agreement referred in this letter creates a legal partnership for income tax purposes;
• the CRA has agreed to or accepted either expressly or implicitly the reasonableness of any allocations of income referred to in this letter.

This letter is based solely on the facts and proposed transactions described above. 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