2015-0586673I7 Self-governing First Nations in the Yukon and BC

Principal Issues: Whether taxpayers would be exempt from tax under section 87 of the Indian Act, (i) if they are members of a Yukon First Nation with or without a final land claim agreement, (ii) if they are members of Yukon First Nation and their income is situated on a reserve in the Yukon or outside the Yukon, (iii) if they are members of a Yukon First Nation and are resident or not resident in the Yukon, and (iv) if they are not a member of a Yukon First Nation and their income is earned in the Yukon, and if they are citizens of self-governing First Nations in British Columbia.

Position: See the response.

Reasons: Final Agreements of the First Nations

Author: Mahendran, Anandavally
Section: 81(1)(a) of the Income Tax Act, 87(1)(b) of the Indian Act, subsections 17(3) and 22(1) of the Yukon First Nations Self-Government Act

                                                                                 January 22, 2016

Benefit Programs Directorate                                   Income Tax Rulings Directorate
Assessment, Benefit, and Service Branch               Business and Employment Division
Rm 7-5047, 750 Heron Road                                   Ananthy Mahendran
Ottawa ON  K1A 0L5                                                905-721-5204

Attention:   Stephanie Melin                                     2015-058667
Senior Programs Officer
Legislation Section
Program Support and Services Division

Application of Section 87 of the Indian Act for Members/Citizens of Self-Governing First Nations

This is in response to your request dated May 14, 2015, wherein you asked for our comments with respect to the application of section 87 of the Indian Act, together with  paragraph 81(1)(a) of the Income Tax Act, to income earned by members and citizens of self-governing First Nations. Based on our discussion and the facts you provided, we understand that you would like information about the potential application of section 87 of the Indian Act in certain situations involving self-governing or land claims agreements containing a “sunset” clause for the section 87 tax exemption.

In particular, you would like to know whether taxpayers would be exempt from tax under section 87 of the Indian Act if they are:

·      members of a Yukon First Nation with or without a final land claim agreement,

·      members of a Yukon First Nation and their income is situated on a reserve in the Yukon or outside the Yukon,

·      members of a Yukon First Nation who are resident or not resident in the Yukon,

·      not members of a Yukon First Nation and their income is situated on a reserve in the Yukon, or

·      citizens of self-governing First Nations in British Columbia.

Our Comments

In the Yukon, there are eleven self-governing Yukon First Nations that are governed by the Yukon First Nations Self-Government Act and three Yukon First Nations that remain under the Indian Act. The following is an analysis of the differences in the application of the section 87 Indian Act exemption for members/citizens of First Nations in the Yukon.

Indians who are members of Yukon First Nations with a final land claim agreement

For purposes of this analysis, a final land claim agreement for a Yukon First Nation is comprised of both the provisions of the Umbrella Final Agreement (the “UFA”) and the provisions of the final agreement specific to that First Nation.

Scenario 1: Yukon First Nations with a final land claim agreement, where the personal property of an Indian is situated on a reserve in the Yukon

According to clause 20.6.1.2 of the UFA, section 87 of the Indian Act does not apply to the personal property of any Indian situated on a reserve in the Yukon as of the third anniversary of the effective date of “settlement legislation” which is defined in the UFA to mean the Yukon First Nations Land Claims Settlement Act, the Yukon First Nations Self-Government Act, and the corresponding Yukon legislation. In Carcross/Tagish First Nation v. Canada, 2001 FCA 231, the Federal Court of Appeal found that the disapplication of section 87 provided for in clause 20.6.1.2 of the UFA only applied to members of Yukon First Nations who had signed final agreements. A “Yukon Indian Person”, as defined in Chapter 1 of the UFA, is a person enrolled under one of the Yukon First Nation Final Agreements in accordance with criteria established in Chapter 3 – Eligibility and Enrollment. Therefore, the income earned in the Yukon by a Yukon Indian Person is not exempt from tax under section 87 of the Indian Act as of the day that is three years after the effective date of the settlement legislation.

The effective date of the settlement legislation for a Yukon First Nation varies according to the date on which the order of amendment to add the Yukon First Nation to Schedule II of the Yukon First Nations Self-Government Act came into force. Please refer to Column A of Appendix 2, Key Dates of Yukon First Nations Final Agreements, for the effective date of the settlement legislation and Column C for the effective date of the disapplication of section 87 of the Indian Act.

See also our comments in Scenario 4 below.

Scenario 2: Yukon First Nations with a final land claim agreement, where the personal property of a Yukon Indian Person is situated on a reserve outside the Yukon and the Yukon Indian Person is resident in the Yukon.

According to clause 20.6.1.3 of the UFA, if a Yukon Indian Person is resident in the Yukon, the income of the Yukon Indian Person is not exempt from tax under section 87 of the Indian Act as of the third anniversary of the effective date of the settlement legislation, even if the income is situated on a reserve in another province or territory. Please refer to Column A of Appendix 2 for the effective date of the settlement legislation and Column C for the effective date of the disapplication of section 87 of the Indian Act.

However, we note that in accordance with subsection 17(3) of the Yukon First Nations Self-Government Act, section 87 of the Indian Act may apply to citizens or members of a Yukon First Nation with a final land claim agreement, if their income is situated outside the Yukon on a reserve of a predecessor band of the Yukon First Nation. If you encounter such a situation, we recommend that the case be referred to the Income Tax Rulings Directorate for further assistance.

Scenario 3: Yukon First Nations with a final land claim agreement, where the personal property of a Yukon Indian Person is situated on a reserve outside the Yukon and the Yukon Indian Person is not resident in the Yukon.

The income of a Yukon Indian Person who is not resident in the Yukon may be exempt from tax under section 87 of the Indian Act if the income is situated on a reserve in another province or territory. There is no provision in the UFA that removes the exemption for those not resident in the Yukon.

Indians who are members of Yukon First Nations without a final land claim agreement

Scenario 4: Yukon First Nations without a final land claim agreement, where the personal property of an Indian is situated on a reserve in the Yukon.

It is our understanding that as of January 9, 2006, there are no reserves in the Yukon for purposes of section 87 of the Indian Act; therefore, the income earned by an Indian in the Yukon is not exempt from tax under section 87 of the Indian Act, even if a Yukon First Nation does not enter into a final land claim agreement. Should you have any situations before this date, please contact the Income Tax Rulings Directorate for further assistance.

Scenario 5: Yukon First Nations without a final land claim agreement, where the personal property of an Indian is situated on a reserve outside the Yukon.

In this scenario, the Indian is not a “Yukon Indian Person” as defined in Chapter 1 of the UFA. As there is no provision of the UFA that removes the Indian Act tax exemption in this situation, section 87 of the Indian Act will continue to apply to the personal property of an Indian situated on a reserve outside the Yukon. Accordingly, the income of an Indian will be exempt from tax under section 87 of the Indian Act if the income is situated on a reserve in another province or territory.

Indians other than members of Yukon First Nations

Scenario 6: Income earned in the Yukon by an Indian who is not a member of a Yukon First Nation

According to clauses 4.1.1.1 and 4.1.1.2 of the UFA, section 12 of the Yukon First Nations Land Claims Settlement Act, and subsection 22(1) of the Yukon First Nations Self-Government Act, which set out the legal status of reserves in the Yukon, the Indian Act ceases to apply in respect of any reserve that is identified in a final agreement as settlement land when the final agreement is given effect. It is our understanding that as of January 9, 2006, there are no reserves in the Yukon for purposes of section 87 of the Indian Act. Therefore, the income earned in the Yukon by an Indian who is not a member of a Yukon First Nation is not exempt from tax under section 87 of the Indian Act as of January 9, 2006. Should you have any situations before this date, please contact the Income Tax Rulings Directorate for further assistance. Please refer to Column B of Appendix 2 for the date on which the Indian Act ceased to apply to a Yukon First Nation reserve that is located in the Yukon.

First Nations in British Columbia

Nisga’a First Nation with a final land claim agreement

According to paragraph 6 of the Taxation Chapter of the Nisga’a Final Agreement, as of January 1, 2013, section 87 of the Indian Act does not apply to Nisga’a citizens and therefore, their income is not exempt from tax, even if they are Indians and their income is situated on another reserve outside the Nisga’a First Nation.

Tsawwassen First Nation with a final land claim agreement

According to sub-clauses 16(b), 17(b), and 18(b) of the Taxation Chapter of the Tsawwassen First Nation Final Agreement, section 87 of the Indian Act will continue to apply to the personal property of an Indian situated on a reserve until December 31, 2019. However, as of January 1, 2020, section 87 of the Indian Act will not apply to Tsawwassen members and therefore, their income will not be exempt from tax, even if they are Indians and their income is situated on another reserve outside the Tsawwassen First Nation.

Attached is a summary of our analysis that may be used as a quick reference chart (Appendix 1). Also attached for your reference is a comprehensive list of key dates for Yukon First Nations final agreements (Appendix 2).

We trust that this information will be of assistance to you.

Yours truly,

Roger Filion, CPA, CA
Manager
Non-Profit Organizations and Aboriginal Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

Appendix 1: Application of Section 87 of the Indian Act for Members of Self-Governing First Nations

Appendix 2: Key Dates of Yukon First Nations Final Aggreements

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