13 April 1995 Internal T.I. 9500577 - UI PREMIUM TAX CREDIT INDIAN BANDS

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:

Do Indian Bands qualify for the UI Premium Tax Credit?

Position TAKEN:

Depends on the facts but in this particular case they would be eligible for the credit.

Reasons FOR POSITION TAKEN:

An employer that is exempt under 149(1)(c) of the Income Tax Act, cannot qualify for this UI Premium Tax Credit. However, these particular bands said that they did not satisfy the requirements for exemption under 149(1)(c) of the Act, so there were not precluded from the UI Premium Tax Credit by virtue of being exempt under 149(1)(c).

		April 13, 1995

A. Bissonnette	Headquarters
	Director	Income Tax Rulings and
	Source Deductions Division	   Interpretations 		Directorate
		Roberta Albert
(613) 957-8953
		7-950057	

UI Premium Tax Credit - Indian Bands

This is in response to your memorandum of January 4, 1995, wherein you requested our views concerning the UI Premium Tax Credit (the "Credit") and Indian Bands.

In particular, subsection 126.1(1) of the Income Tax Act (the "Act") precludes employers who are tax exempt under paragraph 149(1)(c) of the Act from claiming the Credit. Based on your understanding of Interpretation Bulletin IT-62, you have included Indian Bands in this tax exempt category and have disallowed the credit to two Indian Bands. However, the representative of the two Indian Bands' submits that the status of the two bands for the period in question was not that of a municipality. They submit that as these two bands have not exercised powers under section 83 of the Indian Act, they should not be treated as municipalities.

Our Comments

The Department's position, as set out in paragraph 11 of 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) of the Act. 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 Act if it previously qualified under the circumstances set out in IT-62.

For those band councils not "grandfathered", our present policy is to regard Indian band councils as public bodies performing a function of government for the purposes of paragraph 149(1)(c) of the Act, where they exercise or have exercised the powers authorized under both section 81 and section 83 of the Indian Act.

In this particular case, as the band councils have not exercised powers under section 83 of the Indian Act, they would not satisfy the Department's requirements for exemption under paragraph 149(1)(c) of the Act. On this basis, in our view, these two particular bands should not be ineligible for the Credit.

It should be noted that the income of Indian bands is exempt from taxation by virtue of paragraph 81(1)(a) of the Act and section 87 of the Indian Act so that not satisfying the requirements of paragraph 149(1)(c) does not mean that the Indian bands would necessarily have taxable income. However, as the above comments also apply to the Department's position on band councils being regarded as municipalities for the purpose of issuing donation receipts, such an Indian band would not be entitled to issue donation receipts.

for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch