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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
1. Whether all Indian bands qualify for exemption under paragraph 149(1)(c) of the Income Tax Act since they all have the power to make by-laws under section 83 of the Indian Act.
2. Whether the passage of by-laws under section 85.1 of the Indian Act is similar to the passage of by-laws under section 83, such that a band will qualify for exemption under paragraph 149(1)(c) of the Income Tax Act if it has passed by-laws under both section 81 and 85.1 of the Indian Act.
Position:
1. No.
2. No.
Reasons:
1. In order to be considered to be performing a function of government, one must consider what the band actually does. Historically, we have considered that the passage of by-laws under both sections 81 and 83 of the Indian Act (or if the band had reached the advanced stage of development to which section 83 formerly referred) suffice to indicate that the band is performing a function of government. However, it is a question of fact as to whether a band performs a function of government. We will consider the facts of a particular band, reviewing material such as the band's profile and comments on community involvement or functions of government performed, such as involvement in a treaty land entitlement settlement.
2. Section 85.1 of the Indian Act has more similarity to section 81 than to section 83.
XXXXXXXXXX 970908
Attention: XXXXXXXXXX
July 10, 1997
Dear Sirs:
We are writing in response to your letter of April 2, 1997 concerning the possible exemption for Indian bands by virtue of paragraph 149(1)(c) of the Income Tax Act.
Your letter is further to telephone conversations (XXXXXXXXXX/Brooks) on this subject in 1996. You pointed out that, due to changes made to section 83 of the Indian Act, bands now have the power to make by-laws without any need to be recognized as having reached an advanced stage of development. You also noted the addition in 1985 of section 85.1 to the Indian Act which permits a band council to pass by-laws that can be more intrusive into a resident's life than some by-laws passed under section 83. It is your view that all Indian band councils perform a function of government in Canada.
As you indicated, the Indian Act formerly required a band to have reached an advance stage of development before it could pass a by-law under section 83. Upon that requirement being deleted from the Indian Act, the Department adopted the view that a band could be recognized as a public body performing a function of government and thus exempt from Part I tax by virtue of paragraph 149(1)(c) of the Income Tax Act if it passed by-laws under both section 81 and 83 of the Indian Act. Obviously, such by-laws can now be passed by bands that have not reached an advanced stage of development, but for those bands that had reached an advanced stage of development but have passed by-laws under only section 81, the Department continues to treat such bands as qualifying under paragraph 149(1)(c).
Upon analyzing section 85.1 of the Indian Act, we note that this section has more similarity to section 81 than to section 83. Section 81 is a description of the broad subjects on which the band councils have power to pass by-laws, while section 85.1 is similar but focused in its scope to matters relating to intoxicants. By way of example, paragraphs 81(1)(c) and (d) concern the observance of law and order and the prevention of disorderly conduct and nuisances, respectively, while paragraph 85.1(1)(c) concerns prohibiting any person from being intoxicated on the reserve. The remedies for contravention of by-laws passed under these two sections are similar. In both cases, on summary conviction an offender may be subject to fine or imprisonment. On the other hand, section 83 of the Indian Act is primarily concerned with the raising of money by bands. Remedies for contravention of section 83 by-laws are the levying of interest charges and the enforcement of payment of amounts owing.
As you are aware, in determining whether an Indian band was acting in a manner similar to how a public body performing a function of government would act, the Department has historically included a requirement to pass at least one by-law under section 83 of the Indian Act. Where a band has passed by-laws under both sections 81 and 83 of the Indian Act, the Department has recognized the band as a public body performing a function of government in Canada.
However, it is a question of fact as to whether an Indian band may be considered to be a public body performing a function of government in Canada and thereby qualify for exemption from Part I tax pursuant to paragraph 149(1)(c) of the Income Tax Act. The Department will consider the facts of a particular band, reviewing material such as the band's profile and comments on community involvement or functions of government performed, such as involvement in a treaty land entitlement settlement.
We trust that our comments will be of assistance to you.
Yours truly,
R. Albert
A/Chief
Business, Property and Employment Section I
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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