Principal Issues: 1) What are the tax consequences of the following transactions:
i) Payment to the council of a band of monies arising from the settlement of specific claims made by a First Nation against the government of Canada;
ii) Distribution of the settlement monies to members of the band directly by the council of the band;
iii) Distribution of the settlement monies to members of the band by way of a trust settled by the council of the band.
2) Does the comment made by the CRA in 2014-0528511I7, in respect of the condition that members of the First Nation do not have an exclusive or legally enforceable claim to an income distribution, apply in the context of a capital distribution? Are the connecting factors mentioned in 2014-0528511I7 accurate and exhaustive in respect of income of a trust being situated on a reserve?
Position: 1) i) Payment of settlement monies should not be taxable for the council of the band.
ii) Distribution of settlement monies should not be taxable for the members of the band.
iii) Distribution of settlement monies should not be taxable for the members of the band.
2) The comment was made in the context of the specific facts of the interpretation. The connecting factors identified are accurate, but not necessarily exhaustive.
Reasons: 1) i) The council of the band qualifies as a tax exempt entity under paragraph 149(1)c).
ii) There is no source of income for the members.
iii) The distributions are capital distributions.
2) No specific mention of capital distributions in 2014-0528511I7. For the connecting factors, see Williams c. Canada, [1992] 1 R.C.S. 877.
