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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Is a corporation that operates off reserve, and that is owned by an Indian band that qualifies as a municipality, exempt by virtue of 149(1)(d) for the years subsequent to the Otineka Development Corporation Limited court case and prior to 1999 when paragraph 149(1)(d.5) was introduced.
Position: The fact that a corporation may carry on activities off-reserve will not, in and by itself, prevent the corporation from qualifying for the exemption provided in former paragraph 149(1)(d) of the Act.
Reasons: Reasons given by the court in Otineka and former 149(1)(d) did not contain restrictions related to income from activities carried on outside the municipality's geographical boundaries.
October 24, 2001
Brian Whittingham HEADQUARTERS
Verification & Enforcement Cornelis Rystenbil, CGA
Vancouver Island Tax Services (613) 941-6547
2001-009908
Paragraph 149(1)(d) of the Income Tax Act (the "Act")
This is in reply to your correspondence of August 30, 2001, and our telephone conversations (Whittingham/Azzi) in which you ask for our view on the application of paragraph 149(1)(d) of the Act for the taxation years ending in 1995 to 1998 of corporations owned by an Indian band which, as a result of the Otineka Development Corporation Limited (94 DTC 1234) case, qualifies as a municipality for purposes of paragraph 149(1)(c) of the Act. It appears that the corporations operate off-reserve, and you question whether restrictions, similar to those currently in paragraph 149(1)(d.5) of the Act regarding geographical boundaries, applied for the years at issue.
As you know, following the Otineka case, the CCRA revised its position to accept that an Indian band would be considered a municipality in Canada, if the band demonstrates that it fits within the facts of this case. This revised position could be applied in respect of a corporation owned by such a band no sooner than the start of the corporation's taxation year that included January 28, 1994, being the time of the decision in Otineka. Judge Bowman of the Tax Court of Canada stated the following in Otineka: "In my opinion, The Pas Indian Band was a Canadian municipality within the meaning of paragraph 149(1)(d) of the Income Tax Act and accordingly the two companies that it owned, Otineka Development Corporation Ltd. and 72902 Manitoba Ltd. were exempt from tax under paragraph 149(1)(d)."
Paragraph 149(1)(d.5) of the Act was enacted in 1998 and is applicable to taxation years and fiscal periods that begin after 1998. Pursuant to this provision, and subject to subsections 149(1.2) and (1.3) of the Act, a corporation may be exempt from Part I tax on its taxable income for a particular period if not less that 90% of its capital is owned by one or more municipalities in Canada and the income of the corporation from activities carried on outside the geographical boundaries of the municipalities does not exceed 10% of its income for the period. In our view, in the case of an Indian band that is a municipality, geographical boundaries would encompass its reserve lands.
Prior to the enactment of paragraph 149(1)(d.5) of the Act, paragraph 149(1)(d) of the Act was the relevant provision which provided a tax exemption to municipal corporations, and it did not contain any restriction relating to income from activities carried on outside the municipality's geographical boundaries. Accordingly, the fact that a corporation may carry on activities off-reserve will not, in and by itself, prevent the corporation from qualifying for the exemption provided in former paragraph 149(1)(d) of the Act.
Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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