SUMMARY: Supplemental tax ruling to—ITA-3, 81(1)(a)—Whether the payment of a per capita amount from a First Nation to its members is taxable.
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: Will the payment of a per capita amount from the First Nation to its members be taxable?
POSITION: No
REASONS: The payment is not income as that term is used in section 3 of the Act and no specific section in the Act taxes this payment.
XXXXXXXXXX
2010-038456
XXXXXXXXXX
XXXXXXXXXX, 2010
Dear XXXXXXXXXX:
Re: Supplemental Advance Income Tax Ruling—XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX, in which you request a supplement to advance income tax ruling 2008-028249 [] (the “Ruling Letter”), and to the supplemental rulings previously issued (our documents 2009-030788 [], XXXXXXXXXX and XXXXXXXXXX), that were issued to the above-named taxpayer on XXXXXXXXXX, 2008, XXXXXXXXXX, 2009, XXXXXXXXXX and XXXXXXXXXX, respectively.
- All capitalized terms have the same meaning as assigned to them in the Ruling Letter, unless otherwise stated. For purposes of this supplemental ruling the following terms are added to the list of defined terms contained in the Ruling Letter and have the following meanings:
- (b.1) “Certification” means the certification more particularly described in paragraph XXXXXXXXXX of the Trust Agreement;
- (i.1) “Date of Certification” means the date the Certification referred to in paragraph XXXXXXXXXX of the Trust Agreement is executed by Council;
- (s.1) “Per Capita Distribution” means the distribution of funds out of the capital of the Trust Property by the Financial Trustees to the First Nation for the purpose of enabling the First Nation to make the per capita distributions described in paragraph 42.2 below to Qualified Members in accordance with the provisions contained in Paragraph XXXXXXXXXX and Section XXXXXXXXXX of the Trust Agreement; and
- (u.1) “Qualified Member” means a Member who was born on or before the Date of Certification and who is living, or is expected to be living, on the last day of the calendar year of the Date of Certification and Qualified Members means more than one Qualified Member.
- The following facts are added to the Ruling Letter immediately following paragraph 11 under the heading “Facts”:
- 11.1 The Members approved the Trust Agreement in accordance with the Community Approval Process on or about XXXXXXXXXX.
- 11.2 The First Nation and the Initial Trustees executed the Trust Agreement on or about XXXXXXXXXX. As settlor, the First Nation settled the trust with $XXXXXXXXXX.
- 11.3 On or about XXXXXXXXXX, a majority of the Members voted in favour of the Per Capita Distribution with a contemplated base amount of XXXXXXXXXX dollars ($XXXXXXXXXX) per Qualified Member.
- 11.4 Council has given Certification to the Financial Trustees of the estimated number of Qualified Members who had reached the age of XXXXXXXXXX years of age in XXXXXXXXXX and those Qualified Members who had not yet reached this age.
- 11.5 On or about XXXXXXXXXX, the First Nation received the balance of the Total Amount payable by Canada pursuant to the terms of the Settlement Agreement which was directed to be deposited into the Trust's account.
- The following proposed transactions are added to the Ruling Letter immediately following paragraph 42 under the heading “Proposed Transactions”:
- 42.1 The Financial Trustees will transfer the Per Capita Distribution to the First Nation in accordance with the provisions of paragraph XXXXXXXXXX of the Trust Agreement.
- (a) the sum of XXXXXXXXXX dollars ($XXXXXXXXXX) will be paid to a parent, guardian or other person responsible for the care and custody of each Qualified Member who has not reached the age of XXXXXXXXXX years on the date of the per capita distribution;
- (b) the sum of XXXXXXXXXX dollars ($XXXXXXXXXX) will be paid to each Qualified Member who has reached the age of XXXXXXXXXX years on the date of payment of the per capita distribution but who had not reached the age of XXXXXXXXXX years in XXXXXXXXXX; and
- (c) the sum of XXXXXXXXXX dollars ($XXXXXXXXXX) will be paid to each Qualified Member who had reached the age of XXXXXXXXXX years in XXXXXXXXXX.
- 42.3 In the event that the Per Capita Distribution exceeds the amount actually required by the First Nation to make the per capita distributions to Qualified Members, the First Nation will use any such excess for Community Purposes.
- 42.2 The First Nation will use the Per Capita Distribution to make the following per capita distributions:
- The following paragraph is added immediately after paragraph 43 under the heading “Purposes of the Proposed Transactions”:
- 43.1 As well, the proposed transactions enable the First Nation to make the approved per capita distributions to Qualified Members as contemplated by the First Nation.
- Provided that the preceding statements constitute a complete and accurate disclosure of the additional relevant facts, proposed transactions and purposes for the proposed transactions, the following ruling is added to the Ruling Letter under the heading “Rulings Given”:
- H. The per capita distributions as described in paragraph 42.2 above will not be included in the income of the Qualified Members for purposes of Part I of the Act.
Confirmation
Provided that the preceding statements and the statements contained in the Ruling Letter constitute a complete and accurate disclosure of all the relevant facts and proposed transactions and the purposes of the proposed transactions, we hereby confirm that (i) the Ruling Letter is amended in the manner set out above; and (ii) subject to the conditions, limitations, qualifications and comments set out in the Ruling Letter, the Ruling will continue to be binding on the Canada Revenue Agency provided that the proposed transactions set out in the Ruling Letter are completed by XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
Manager
Non-Profit Organizations and Aboriginal Issues
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch