20 July 1990 Ministerial Letter 900138 F - Indian Bands All the Limited Partners of Limited Partnerships

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.

July 20, 1990

Dear Sirs:

Re:   Limited Partnerships Where all Limited Partners are Indian Bands

This will reply to your letter of February 20, 1990 requesting a technical interpretation with respect to paragraph 81(1)(a) of the Income Tax Act (the "Act") and section 87 of the Indian Act as they affect the income earned by a limited partnership in which all the limited partners are Indian bands.  We apologize for the delay in our response.

For the purpose of this technical interpretation you have assumed the following facts:

1.         A limited partnership (the "Partnership") will be formed in accordance with section 51 of the Alberta Partnership Act.

2.     All limited partnership interests in the Partnership will be held by various Indian bands (the "Bands") all of whom are "bands" as defined in subsection 2(1) of the Indian Act.

3.     The general partner of the Partnership will be an Alberta corporation ("Albertaco") incorporated under the Alberta Business Corporations Act.  The issued shares of Albertaco will be owned by the Bands in the same proportion as the limited partnership interests in the partnership.

4.     The registered office and head office of Albertaco will be situated on a "reserve" (the "Reserve") as defined in subsection 2(1) of the Indian Act.  All of the management and administration of Albertaco will take place at its head office. All of the directors and officers of Albertaco will be "Indians" as defined in subsection 2(1) of the Indian Act.  All of the director's meetings for Albertaco will take place at its head office situated on the Reserve.

5.     The place of residence of all limited partners and of Albertaco will be the Reserve and will be  indicated as such on the Certificate of Limited Partnership to be file with Central Registry pursuant to section 51 of the Alberta Partnership Act.

6.     The Partnership will carry on business in Alberta both on and off the Reserve but will not have an office located outside the Reserve. In carrying on business off the Reserve, the Partnership may use some of its equipment outside the Reserve.

7.     The management and administration of the Partnership will occur as much as possible on the Reserve, except to the extent that off-reserve management and administration is required for off-reserve business conducted by the Partnership.

8.     In accordance with section 63 of the Alberta Partnership Act, the Bands, being the limited partners of the Partnership, will not take part in the management and control of the partnership business.

9.     The partnership will employ Indians in its business as much as possible.  All employment contracts will be executed on the Reserve and all salaries and wages will be payable at the Partnership's principal place of business located on the Reserve.

10.     The partnership agreement governing the Partnership will provide that Albertaco will be entitled to an allocation of profit from the partnership sufficient to cover its annual expenses incurred in its role as general partner and to provide Albertaco with a small profit.  The balance of the  annual profit of the Partnership and all of the  losses from the Partnership will be allocated to the limited partners in proportion to their limited partnership interests.  The partnership agreement will be executed and located on the Reserve and will provide that all profits allocated to the partners will be payable on the Reserve.

Our comments

You are concerned whether the partnership profits allocated to the Bands would be exempt under paragraph 81(1)(a) of the Act pursuant to section 87 of the Indian Act.  Based on the scenario presented above, it seems reasonable to conclude that the partnership's permanent establishment would be located on the Reserve and that all business income emanating from that permanent establishment, whether derived from operations on or off the reserve, would be exempt in the hands of those status Indians having actual ownership of a particular band's partnership interest.

As discussed with you (Thornley/19(1)) over the telephone, Indian bands are not recognized entities for tax purposes and according to R. v. Cochrane, (1977) 3 W.W.R. 660 (Man) and R. v. Peter Ballantyne Band, 47 M.V.R. 299 (1987) 1 C.N.L.R. 67, 45 Sask. R. 33 (QB), a band is not a person in law.  The judgement in the Keewatin Tribal Council Inc. case, to which you referred us, suggests that "unincorporated associations" are not taxpayers and are not persons.  However, the bulk of the judgement appears to deal with the issue of a valid trust in favour of the Band which in essence is our position with respect to your enquiry.

In our view all forms of business ownership by a Band have to be held in trust by individual band members.  In most cases these would be band counsel members or the chief.  Where this is the case, the trust itself is not exempt but any distribution to the Indian beneficiaries within the year would be exempt in the hands of such status Indian beneficiaries.  Such distributions by the trust would, of course, be a deduction in computing trust income.

In closing we point out that in your letter you asked that we comment on whether the profits allocated to the Band would be exempt from taxation under paragraph 81(1)(a) of the Act.  Our reply has dealt mainly with this issue, however, there are other concerns which need to be addressed.

One would be the nature and magnitude of the off-reserve business (no information provided) and whether there might be an off-reserve permanent establishment, such as a long term building or construction site, a quarry, a mine, a timber limit, etc.  Any income attributable to an off-reserve permanent establishment may not be exempt.

Another relates to subsection 103(1) of the Act.  Pursuant to this subsection, where the members of a partnership have agreed to share, in a specified proportion, any income or loss of the partnership from any source, and the principal reason for the agreement may reasonably be considered to be the reduction or postponement of the tax that might otherwise have been or become payable, the Department will adjust each partner's share to an amount which is considered reasonable having regard to all the circumstances.  In this respect, subsection 103(1) of the Act may apply to the allocation of all the losses to the limited partners only.

We trust that these remarks will be helpful, but remind you that they are opinions only and are not binding on the department.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch