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.
TAXATION OF INDIAN OWNED CORPORATIONS
- In the 1994 case of Otineka Development, the Tax Court of Canada determined that, in certain circumstances, a First Nation could qualify as a Canadian municipality. As there is no definition of “Canadian municipality” in the Income Tax Act, the Court concluded that the term must be given its ordinary meaning and should not be determined solely by provincial legislation governing municipalities.
- Since Otineka, entities owned at least 90% by a First Nation which qualifies as a Canadian municipality have been exempt from tax by virtue of paragraph 149(1)(d) of the Act.
- Amendments have recently been made to paragraph 149(1)(d) of the Act, such that the exemption is lost if a municipal owned entity’s income from activities carried on outside of the geographical boundaries of the municipal owner exceeds 10% of its income. Income from activities carried on outside the geographical boundaries of a municipality does not include income from activities carried on under an agreement in writing with another level of government that are carried on inside the geographical boundaries of the governments that are party to the agreement.
- This change is effective for taxation years beginning after 1998.
- For an Indian owned corporation, this means that only those whose income from activities carried on outside of their reserve does not exceed 10% of their income will be exempt. (In determining income from activities carried on outside of their reserve, income from activities carried on, under an agreement in writing, on the reserve of another municipal First Nation or within the geographical boundaries of another government, are not included.)
- The First Nation community has complained that this amendment will effect most Indian owned corporations as they have been encouraged to set up and develop clientele off reserve. One representative has indicated that the First Nation community is just realizing the effects of this amendment. We have received complaints that the First Nation community should have been consulted regarding this amendment and that the amendment should have been communicated to the First Nations.
Roberta Albert / 957-2100
November 6, 1998