first nations commodity taxation

First Nations Commodity Taxation

Noah Sarna & Tamara OldingMay 14, 2009

Disclaimer

THE FINE PRINT

This presentation contains general information and not legal advice

No solicitor-client relationship or privilege attaches to an exchange of info

For a specific problem, consult a lawyer

Background to First Nations Commodity Sales Tax Regimes

A. Introduction Taxation powers as a tool for self-

reliance and self-sufficiency; additional source of revenue

1997: First Nations’ Sales Tax (FNST) for any interested First Nation governments of fuel, tobacco and alcohol on all reserve or settlement lands of that First Nation.

Background to First Nations Commodity Sales Tax Regimes (cont’d)

B. Legislative Developments 2000, the Budget Implementation Act, 2000

(Canada) (the “FNSTA”) 2003, First Nations Goods and Services Tax

Act (Canada) (the “FNGSTA”)

Background to First Nations Commodity Sales Tax Regimes (cont’d)

C. Adopting a Commodity Sales Tax Implemented by the Department of

Finance, administered by the Canada Revenue Agency.

Tax revenues transferred to the First Nation government

FNST initiatives currently under a moratorium

Implementation of Commodity Sales Tax Regimes

A. The Process Federal government must, following request,

add First Nation government to Schedule Parties must negotiate and enter into an

“administration agreement" First Nation government must pass a law Whole process takes at least a year to

complete

Implementation of Commodity Sales Tax Regimes (cont’d)

B. Administrative Agreements Wherever the federal government administers

a law made by a First Nation government that imposes a tax and then pays the First Nation government the revenues

Elements of FNGST Administrative Agreement: Formula for how much the federal government

will pay to the First Nation


B. Administrative Agreements: Elements (cont’d) penalties and fines Share the tax revenue Administration, enforcement, collection and

accounting exchange of information


C. Provincial Sales Tax A direct commodity tax, equivalent to

provincial sales tax Involves the government of the province in

which the First Nation's reserve lands are situated

Only two First Nation governments have completed this process

Application of Commodity Sales Tax Regimes

A. Administration, Reporting and Payment Operates in a similar manner to the GST

Same rules that apply to businesses outside of reserve and settlement lands in relation to the GST apply to businesses on reserve and settlements lands in relation to the FNST and FNGST

GST/HST registrants are required to collect and account for the FNST

Application of Commodity Sales Tax Regimes (cont’d)

A. Administration, Reporting and Payment (cont’d)

May claim input tax credits Hold funds in trust for the CRA until they

complete a GST/HST tax return

Application of Commodity Sales Tax Regimes (cont’d)

B. Subject Matter FNST: Alcohol, fuel and tobacco FNGST: Same goods and services taxable

under the GST/HST Types of goods and services:

Goods and services that are taxable at the regular GST rate

Goods and services that are taxable at a rate of 0%

Goods and services that are exempt from GST

Primary Advantages of Commodity Taxation

Acces to another source of unrealized, independent revenue → fosters a healthy business climate and attracts investors

Allows First Nation governments to allocate specific revenues to community programming, infrastructure needs and economic development

Primary Advantages of Commodity Taxation (cont’d)

First Nations with significant commercial development or activity will gain the greatest revenues

However, FNGST can still benefit those First Nations with little development or activities upon their lands as it is the place of consumption, not supply, that determines the allocation of FNGST

Primary Advantages of Commodity Taxation (cont’d)

Step towards self-government as revenues are spent according to the discretion of the First Nation governments

Facilitates long-term government planning

Provides a connection between public services and local taxpayers → greater political engagement

Administration Agreements allow either party to terminate the Agreement at any point in time with the provision of six months notice

Disadvantages/Current Controversies of Commodity Taxation

For band members, application of FNGST/FNST will mean the loss of a tax advantage previously enjoyed

First Nation governments may need to counter the imposition of an additional tax and the potential financial hardship on some members (i.e. elders)

Disadvantages/Current Controversies of Commodity Taxation (cont’d)

Revenue received will be subject to a number of factors:

Estimate of net GST to be collected throughout B.C. for one year

Numbers of band members aged 15 years and up living on the reserve or settlement lands

Average taxable consumption of that population


FNGST revenues will only be distributed to the First Nation if those taxable goods or services are consumed upon their subject lands, regardless of where the goods or services are purchased

May be gaps in the Department of Finance’s calculation of the commodity tax due to inaccurate records


FNGST applies beyond the boundaries of the reserve or settlement lands where FNGST applies

CRA example:An Indian individual, who qualifies for tax relief under the Indian Act, purchases a new mobile home from a dealer on a reserve. He arranges to have a friend move the mobile home from the reserve onto the lands of a First Nation where FNGST applies. As the individual qualified for tax relief at the time of purchase, he did not pay tax. However, as he brought the mobile home onto the lands of a First Nation where FNGST applies, the individual is required to self-assess the 5% FNGST


responsibility may be the case that the taxing First Nation could lose a certain proportion of commodity taxation revenue due to lack of enforcement of non-members of the taxing First Nation will not be eligible for band election voting rights and as a result, will be without a forum to provide input into the expendure of the taxation revenue collected through FNGST/FNST

Could be approached constructively through the development of taxation committee

FNST/FNGST In Application

In comparison to the property tax regime, commodity taxation has proven to be far less popular

Lack of interest may be attributed to the political disadvantages or, to other fears such as the reduction of fiscal transfers or the erosion of fiduciary responsibilities due to the increase in revenue that the First Nation may receive

FNST/FNGST In Application (cont’d)

Research conducted by the Institute on Governance demonstrated that the assumption of the commodity taxation jurisdiction had allowed the communities surveyed to more effectively develop community and economic development plans

FNST/FNGST In Application (cont’d)

In the case of Tsawout First Nation, commodity taxation revenues have been directed towards the construction of community buildings

Westbank First Nation has used commodity taxation revenues for the development of community facilities, retainment of community workers and strengthening of governance infrastructure

Participants in the IOG study also noted an increase in member participation in government processes

first nations commodity taxation

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