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. Will a First Nation that is a public body performing a function of government (PBPFG) because it has both section 81 and 83 by-laws under the Indian Act (IA), that transfers its section 83 by-law to operate under the authority of the First Nations Fiscal and Statistical Management Act (FSMA), still be considered a PBPFG?
2. Will a First Nation that has a section 81 by-law under the IA but does not have a section 83 by-law under the IA, and that is added to the FSMA schedule qualify as a PBPFG?
3. Will a First Nation that has a section 81 by-law under the IA but does not have a section 83 by-law under the IA, and has a by-law under subsection 5(1) of the FSMA, qualify as a PBPFG?
Position: 1. Yes.
2. No. Being added to the FSMA schedule is not enough. A by-law must be enacted.
3. Yes.
Reasons: 1. and 3. The FSMA has the equivalent or more authority and structure than section 83 of the Indian Act for the creation, approval and administration of property tax by-laws.
2. A First Nation can request to be added to the schedule, but not enact a local revenue by-law.
December 22, 2008
Policy and Communications Officer HEADQUARTERS
Charities Directorate Policy, Planning and P. Burnley
Legislation Division (613) 957-3498Attention: Ms. Comtois
2008-028043
Required Property Tax By-laws for Purposes of Paragraph 149(1)(c) of the Income Tax Act (the "Act")
This is in reply to your email of June 3, 2008 requesting our comments on the application of the First Nations Fiscal and Statistical Management Act (the "FSMA") in lieu of or as a replacement for section 83 of the Indian Act (the "IA").
Specifically, you asked us to confirm:
1. Will a First Nation ("FN") that is a public body performing a function of government ("PBPFG") for the purposes of paragraph 149(1)(c) of the Act because it has enacted both section 81 and section 83 by-laws under the IA, that transfers its section 83 by-law to operate under the authority of the FSMA, still be considered a PBPFG by the Canada Revenue Agency ("CRA")?
2. Will a First Nation that has a section 81 by-law under the IA but does not have a section 83 by-law under the IA, and that is added to the FSMA schedule, qualify as a PBPFG?
3. Will a First Nation that has a section 81 by-law under the IA but does not have a section 83 by-law under the IA, and that has a by-law under subsection 5(1) of the FSMA, qualify as a PBPFG?
First Nations as a Public Body Performing a Function of Government
The determination of whether or not a FN is a PBPFG is made on a case by case basis. However, the CRA has consistently taken the position that a First Nation will qualify as a PBPFG for the purposes of paragraph 149(1)(c) of the Act if it has passed by-laws under both sections 81 and 83 of the IA.
The FSMA
Background
The FSMA, enacted in 2005, provides legislative authority for several bodies and powers, including FN fiscal powers (real property taxation). The FSMA establishes four institutions: (1) the First Nations Tax Commission ("FNTC"); (2) the First Nations Financial Management Board ("FMB"); (3) the First Nations Finance Authority ("FNFA"); and (4) the First Nations Statistical Institute.
In 1989, the Indian Tax Advisory Board (the "ITAB") was created to advise FNs on the use of section 83 of the IA and to promote and safeguard FN property taxation powers under this provision. The ITAB was a regulatory authority with no statutory authority. The ITAB provided advice to the Minister of Indian and Northern Affairs Canada (the "Minister") on the approval of section 83 by-laws; however, the Minister still had to approve such by-laws. The FNTC is the successor organization to the ITAB.
It is expected that many FNs will choose to operate their property tax systems under the FSMA due to the reduced wait time for approval of by-laws, and more importantly, the access to investing and financing opportunities available with the FNFA, under the direction of the FNTC and the FMB.
Operation
To operate a property tax system through the FSMA, a FN must be listed in the schedule to the FSMA pursuant to paragraph 2(1)(b) of that statute. To be added to the schedule, a FN must submit a band council resolution requesting to be added to the schedule under subsection 2(3) of the FSMA. Generally, only FNs that are currently bands as defined in the IA may make such a request. The FNTC has statutory authority to amend the schedule to include such a band. Certain aboriginal groups that are not bands as defined in the IA, such as those that are party to a self-government agreement, may be added to the schedule, with approval from the FNTC, through a regulation added pursuant to section 141 of the FSMA.
FN fiscal powers under the FSMA are defined in Part 1 of that statute. Section 5 of the FSMA is the authority for the local revenue laws (property taxation laws) similar to section 83 of the IA. Section 5 allows a council of a FN to make laws respecting
i. taxation of reserve lands;
ii. taxation of interests in or rights to occupy, possess or use reserve lands;
iii. taxation of business activities;
iv. imposition of development cost charges;
v. expenditures of local revenues;
vi. enforcement of revenue laws by liens, seizure, etc, and
vii. procedures for representations of taxpayers.
Paragraph 5(1)(d) of the FSMA also allows for by-laws regarding borrowing from the FNFA . An existing by-law made under section 83 of the IA can be moved to the FSMA framework. The FN would first have to be added to the FSMA schedule as described above. Section 145 of the FSMA then specifically deems by-laws made under paragraphs 83(1)(a) or 83(1)(d) to (g) of the IA to be laws made under sections 5 or 9 of the FSMA, to the extent that the laws are not inconsistent with sections 5 or 9 at the time the FN is added to the schedule. Thus, by-laws previously made under section 83 of the IA will continue in effect under the FSMA as FSMA by-laws.
The FSMA is significantly more comprehensive and detailed than section 83 of the IA in all areas of property taxation of FNs, including creation of the by-laws, requirements for financial management, enforcement of the by-laws, and respect of the rights of taxpayers.
Continued Operation of Section 83 of the IA
A FN that chooses to operate its property taxation by-laws under section 83 of the IA does not have to be added to the FSMA schedule. For section 83 by-laws, the FNTC makes its recommendation to the Minister whether or not to approve the FN's bylaw. A favourable recommendation means that the by-law complies with the Canadian Charter of Rights and Freedoms, conforms to the principles of natural justice, and conforms to IA and FNTC policy. Based on the FNTC's recommendation, the Minister will approve, or not approve, the proposed by-law.
Conclusion
The FSMA is a comprehensive legal authority encompassing property taxation by-laws for FNs. In our opinion, a property tax by-law operated under the authority of the FSMA would be, at a minimum, equivalent to a property tax by-law operated under section 83 of the IA.
Consequently, a FN that is currently a PBPFG, as that term is used in paragraph 149(1)(c) of the Act, by virtue of having section 81 and 83 by-laws under the IA, and that chooses to transfer its section 83 by-law to operate under the authority of the FSMA, will still be considered a PBPFG by CRA. Additionally, a FN that has a section 81 by-law under the IA and a by-law under subsection 5(1) of the FSMA will qualify as a PBPFG.
However, a FN that has a section 81 by-law under the IA, but no section 83 by-law under the IA, and that is added to the FSMA schedule without enacting a bylaw under subsection 5(1) of the FSMA, may or may not qualify as a PBPFG. There does not appear to be any provision within the FSMA that ensures that a FN must enact a property tax by-law once it is added to the schedule. Therefore, we cannot conclude that having a section 81 by-law under the IA and merely being added to the FSMA schedule is equivalent to having both section 81 and 83 by-laws under the IA.
We trust that these comments will be of assistance.
Yours truly,
Eliza Erskine
A/Manager
Non-Profit Organizations and Aboriginal Issues Section
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2008
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2008
Email this Content