Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 181082
Subject: GST/HST INTERPRETATION
Expense allowances of elected officers of First Nations
Thank you for your letter of December 1, 2016, concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to expense allowances provided by Indian bands to the bands’ elected chief and councillors.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
We understand that you would like us to confirm that an Indian band that has been determined as a municipality by the Minister of National Revenue for GST/HST purposes may qualify for a public service body (PSB) rebate in respect of a non-accountable expense allowance paid to an elected officer of that Indian band.
Further, you would like us to consider extending the qualification for the rebate, to which we refer in the paragraph above, to Indian bands that have not been determined as municipalities for GST/HST purposes. To this end, you argue that municipalities and Indian bands “are structured in an almost identical manner” as municipalities, and that their elected officers “perform virtually identical duties to elected municipal officers.”
Although you use the term “First Nations” throughout your letter, we assume that your interpretation request does not apply to First Nations that have signed final self-government agreements, because such self-governing First Nations cannot be compared in a reasonable manner to a municipality, as their responsibilities are much broader. Accordingly, we will refer and apply our interpretation to Indian bands as defined under subsection 2(1) of the Indian Act:
band means a body of Indians
(a) for whose use and benefit in common, lands, the legal title to which is vested in Her Majesty, have been set apart before, on or after September 4, 1951,
(b) for whose use and benefit in common, moneys are held by Her Majesty, or
(c) declared by the Governor in Council to be a band for the purposes of this Act.
INTERPRETATION REQUESTED
You would like to know:
1. If an Indian band that has been determined as a municipality for GST/HST purposes may qualify for a partial PSB rebate, as described in GST/HST Policy Statement P-097R2, Expense Allowances of Elected Municipal Officers and School Board Members (P-097R2), in respect of a non-accountable expense allowance provided to an elected officer (i.e., an elected chief and an elected councillor) of the Indian band.
2. If an Indian band that has not been determined as a municipality for GST/HST purposes may qualify for the partial PSB rebate described in P-097R2 in respect of a non-accountable expense allowance paid to an elected officer of the Indian band.
INTERPRETATION GIVEN
As defined in subsection 259(1), a “selected public service body” (SPSB) includes a municipality. Accordingly, a person determined or designated as a municipality for GST/HST purposes qualifies as an SPSB. Subsection 259(3) of the ETA provides that an SPSB is eligible to claim a rebate equal to the prescribed percentage of the non-creditable tax charged in respect of property or a service.
“Non-creditable tax charged” is defined in subsection 259(1) of the ETA and under subparagraph (a)(iii) of the definition it includes tax (i.e., GST/HST), calculated on the amount of an allowance in respect of property or service, that is deemed to have been paid by the person under section 174 of the ETA. Consequently, where a person that is an SPSB pays an allowance that qualifies under section 174 of the ETA, the person is generally eligible to claim a rebate under subsection 259(3) of the ETA in respect of the tax that is deemed to be paid on the allowance under section 174 of the ETA.
Generally, section 174 of the ETA applies where a person pays a reasonable allowance to an employee, a partner, or where the person is a charity or a public institution, a volunteer:
* to purchase property or services in Canada, all or substantially all, of which are taxable (other than zero-rated) supplies in relation to activities engaged in by the person, or
* for the use in Canada, in relation to activities engaged in by the person, of a motor vehicle, and
the allowance is deductible in computing the income of the person for purposes of the Income Tax Act (ITA) or would be deductible if the person were a taxpayer under the ITA and the activity were a business.
Accordingly, the policy described in P-0972R2 may apply to those Indian bands that are determined as municipalities for GST/HST purposes, but only if the non-accountable allowance qualifies under subsection 81(3) of the ITA.
Under subsection 81(3) of the ITA, an allowance for expenses incidental to the discharge of duties that is paid to a person (the recipient) as an elected officer of an incorporated municipality, municipal utilities board, commission or corporation or other similar body, or as a member of a public or separate school board or similar body governing a school district, does not constitute salary or remuneration to the recipient except to the extent that the allowance exceeds one-half of the amount paid to the recipient as salary or remuneration by the municipal corporation, municipal body or school board of which the recipient is an elected officer or member.
Although an Indian band may be “determined” to be a municipality under paragraph (b) of the definition of “municipality” in subsection 123(1) of the ETA, this GST/HST status does not mean that a non-accountable expense allowance paid by the band to its elected officials automatically qualifies under subsection 81(3) of the ITA. The question of whether a non-accountable expense allowance paid by an Indian band to its elected officials qualifies under subsection 81(3) of the ITA is not a matter on which our Directorate may comment.
Should you wish to receive guidance on subsection 81(3) of the ITA, we recommend that you confer with the manager of the Business and Employment Section 1 unit of the Income Tax Rulings Directorate, the current manager of which is Michel Lambert (613-670-9062). Mr. Lambert’s address follows.
Income Tax Rulings Directorate
Business and Employment Division
Business and Employment Section 1
Legislative Policy and Regulatory Affairs Branch
Canada Revenue Agency
Ottawa ON K1A 0L5
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Further changes to the ETA, regulations, or the CRA’s interpretive policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-1175. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Dwight Kostjuk
Aboriginal Affairs and Educational Sectors Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
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