XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sirs:
RE: Indian Bands and Councils as Municipalities
This is in reply to your letter of October 27, 1992 addressed to the Victoria District Office concerning the question of whether a particular Indian Band, XXXXXXXXXX, is a municipal authority and if a municipal authority, a Canadian municipality. We regret the delay in replying to your letter.
In your letter you indicate that you have recently filed T-2 Corporation Income Tax Returns for the following five Indian corporations:
XXXXXXXXXX
You then ask to make application to have the above five corporations considered exempt from income taxes pursuant to paragraph 149(1)(d) of the Income Tax Act (the "Act"). We are unable to comply with your request as an Indian Band is not a municipality for purposes of the Act. This matter was just recently the subject of a question prepared for the November, 1992 Canadian Tax Foundation.
In answer to the questions, do Indian Bands qualify as municipal authorities for the purposes of the exemption under paragraph 149(1)(c) of the Income Tax Act and do corporations owned by Bands qualify for the exemption in paragraph 149(1)(d)?, we replied: ANSWER:
An Indian band council is not a "municipality" for purposes of the Income Tax Act. It may, depending on all the circumstances, be a public body performing a function of government and therefore be exempt from tax under that portion of paragraph 149(1)(c) of the Income Tax Act.
However, the Department's position as set out in paragraph 11 of Interpretation Bulletin IT-62 is that band councils that have reached the advanced stage of development required by Section 83 of the Indian Act will qualify for tax exemption under paragraph 149(1)(c). Although section 83 of the Indian Act was amended in 1988 deleting the reference to the advanced stage of development, a band council will continue to qualify under paragraph 149(1)(c) of the Income Tax Act if it previously qualified or would have qualified under the circumstances set out in IT-62.
For those band councils not "grandfathered" as indicated, our present policy is to regard Indian band councils as public bodies performing a function of government in Canada for the purposes of paragraph 149(1)(c) of the Act (exempt from tax) where they exercise or have exercised the powers authorized under both section 81 and 83 of the Indian Act. The foregoing policy has been maintained pursuant to an undertaking given to the House of Commons by a former Minister of National Revenue (see Hansard report of March 21, 1977). However, it does not extend to paragraph 149(1)(d) of that Act.
Given that a band council is not a Canadian municipality, a band owned corporation will not qualify for exemption under paragraph 149(1)(d) of the Act.
Although not specifically referred to in the question, the above comments would also apply, with appropriate changes, to the Department's position regarding band councils issuing donation receipts pursuant to the charitable gift provisions of the Income Tax Act. In the circumstances outlined previously the Department, as an administrative policy only, has taken the position that a band council may be regarded as a Canadian municipality for purposes of both paragraph 118.1(1)(d) and subparagraph 110.1(1)(a)(iv) of the Act and may issue donation receipts under those provisions for donations received. If you have further questions on this issue please contact the writer at the number indicated above.
We trust our comments will be of assistance to you.
Yours truly,
E. Wheeler for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
c.c. Victoria District Office Surrey Taxation Centre