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, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 209595
Business Number: […]
Dear [Client]:
Subject: GST/HST RULING
[…][Whether a] band-empowered entity
Thank you for your letter of [mm/dd/yyyy], concerning whether the […] (“Organization”) qualifies as a band-empowered entity (BEE). We apologize for the delay in our response.
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%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
We understand the facts as follows based on your fax, additional information and documents provided, and a review of the Organization’s website:
1. The Organization was incorporated as a corporation without share capital by Letters Patent granted [mm/dd/yyyy] under […][Province A legislation].
2. The Organization stated it is a non-profit organization on its website.
3. The Organization’s head office is located on a […] First Nation reserve.
4. […][Information from the Letters Patent about the purpose of the Organization as it relates to supporting certain First Nations Employees].
5. Section […] of the Letters Patent states […] [that persons who are members of the Organization are certain First Nations Employees in Province A. The person ceases to be a member when the person ceases to be a First Nation Employee].
6. […][Information about the Organization’s by laws].
7. Amended section […] of By-Law […] states, in part […][that the members of the Organization approve the budget].
8. Amended section […] of By-Law […] states, in part, […][that members of the Organization are certain First Nations Employees in Province A].
9. Amended section […] of By-Law […] provides that full members in the Organization enjoy the benefits of membership and have full voting privileges at the Annual General Meeting of the members (AGM) if membership has been paid in full. Amended section […] further provides that each voting member shall have one vote for their respective First Nation community.
10. Amended section […] of By-Law […] provides that the annual or any other meeting of the members shall be held at any place (i.e., in person, via teleconference or video conference) in […][Province A] at the discretion of the Board of Directors, as long as the meeting occurs prior to [mm/dd] of the current fiscal year.
11. Amended section […] of By-Law […] states, […][that the Board of Directors manages the Organization. Positions on the Board are limited to working or retired First Nations Employees who have paid their membership in full for the current fiscal year] (Footnote 1) .
12. Amended section […] of By-Law […] states, […][the minimum and maximum number of directors for the Board of Directors].
13. Section […] of By-Law […] states, in part, […][how names are forwarded to fill vacancies on the Board during the AGM].
14. Section […] of By-Law […] states, in part, […][how a vacancy is filled between AGMs].
15. Amended section […] of By-Law […] states, in part, […][the composition of the Executive Committee].
16. The Organization’s by-laws are silent as to the disposition of the Organization’s assets upon dissolution.
RULING REQUESTED
You would like to know if the Organization qualifies as a BEE.
RULING GIVEN
Based on the facts set out above, we rule that the Organization does not qualify as a BEE.
EXPLANATION
A BEE is defined in GST/HST Technical Information Bulletin B-039, Administrative Policy – Application of the GST/HST to Indians (TIB B-039) to be “a corporation, board, council, association, society, or other organization that is owned or controlled by a band, a tribal council, or a group of bands other than a tribal council.” The Canada Revenue Agency (CRA)’s policy in TIB B-039 applies to BEEs situated on a reserve. A BEE is considered to be situated on a reserve when the entity maintains a presence on a reserve.
Whether or not an entity meets the owned or controlled condition of the definition of a BEE is determined by the following criteria contained in TIB B-039:
“An entity is considered to be owned by a band, a tribal council or a group of bands other than a tribal council if one of the following applies:
* the band, tribal council or group of bands owns all or substantially all [90 per cent or more] of the shares or holds all or substantially all of the memberships of the entity
* the band, tribal council or group of bands holds title to the assets of the entity or controls its disposition, such that in the event of wind-up or liquidation, these assets are vested in the band, tribal council or group of bands
An entity is considered to be controlled by a band, tribal council or group of bands other than a tribal council if both of the following apply:
* the band, tribal council, group of bands or individual members of the band, tribal council or group of bands appoint or elect a majority of the members of the governing body of the entity (for example, directors)
* the entity is required by legislation, by-laws or an operating agreement to submit to the band, tribal council or group of bands, its operating budget and, where applicable, its capital budget for review and approval.”
Where an entity is a non-share organization, such as a membership entity, ownership may be determined by reference to who holds the entity’s memberships. Because membership interests are comprised of rights that differ from those associated with shares or capital in an entity, the membership interest in an entity must be examined. This is done on a case-by-case basis to ensure the policy intent is achieved.
To ensure that a band, tribal council or group of bands holding all or substantially all of the memberships in an entity can be considered to own that entity for purposes of TIB B-039, the CRA requires evidence that they have ownership rights similar, but not necessarily identical, to those of shareholders. That is, do the members have the rights normally associated with ownership that are similar to those held by shareholders? For example, the ownership of the majority of voting shares of a corporation carries with it the right to a majority of the votes in the election of the corporation's Board of Directors.
In this case, membership in the Organization is restricted to [certain First Nations Employees], within [Province A]. Therefore, a band, tribal council or group of bands does not hold all or substantially all of the memberships in the Organization and, as a result, the Organization does not meet the first condition for ownership.
Based on the information provided, the Organization does not meet the second condition for ownership as upon dissolution, the Organization’s assets will not be vested in a band, tribal council or group of bands.
Given the preceding, in order to qualify as a BEE under TIB B-039, the Organization must meet both conditions for control.
The second condition for control under TIB B-039 requires that the operating budget and, where applicable, the capital budget be submitted for review and approval by a band, tribal council or group of bands. In this case, amended section […] of By-Law […] confirms that the responsibility to approve the Organization’s annual operating budget rests with its members. Under amended section […] of By-Law […], Indian bands or a tribal council are not members of the Organization. Therefore, as the Organization’s operating budget is not reviewed and approved by a band, tribal council or group of bands, the second condition is not met.
ADDITIONAL INFORMATION
In general, every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered for the GST/HST, except where the person is a small supplier. A person is a small supplier if their total revenues and those of its associates from taxable supplies are $30,000 or less ($50,000 for public service bodies) in the last four consecutive calendar quarters and in any single calendar quarter.
For purposes of the GST/HST, the Organization may be a non-profit organization, which is a public service body eligible for the $50,000 small supplier threshold. A non-profit organization is defined in subsection 123(1) to mean “a person (other than an individual, an estate, a trust, a charity, a public institution, a municipality or a government) that was organized and is operated solely for a purpose other than profit, no part of the income of which is payable to, or otherwise available for the personal benefit of, any proprietor, member or shareholder thereof unless the proprietor, member or shareholder is a club, a society or an association the primary purpose and function of which is the promotion of amateur athletics in Canada".
If the Organization is a qualifying non-profit organization, it may be eligible to claim a public service bodies’ rebate. In order to be a qualifying non-profit organization, a person must be a non-profit organization and it must receive at least 40% of its revenue in the form of government funding. For more information, see […] and Guide RC4034, GST/HST Public Service Bodies’ Rebate, under the heading “Claiming a rebate as a qualifying non-profit organization”.
For additional information on how the GST/HST applies to non-profit organizations, please refer to Guide RC4081, GST/HST Information for Non-Profit Organizations.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, the CRA is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. 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. Future changes to the ETA, regulations, or the CRA's interpretative 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 343-573-6085. 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,
Philippe Taylor
Government Sectors and Indigenous Affairs Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
FOOTNOTES
1 “Chapter” is defined in By-Law […] to mean “a specific geographic region as defined by the [Organization’s] Board”.
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