first nations commodity taxation
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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
Implementation of Commodity Sales Tax Regimes (cont’d)
B. Administrative Agreements: Elements (cont’d) penalties and fines Share the tax revenue Administration, enforcement, collection and
accounting exchange of information
Implementation of Commodity Sales Tax Regimes (cont’d)
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
Disadvantages/Current Controversies of Commodity Taxation (cont’d)
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
Disadvantages/Current Controversies of Commodity Taxation (cont’d)
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
Disadvantages/Current Controversies of Commodity Taxation (cont’d)
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