In Registered Charities Newsletter No. 24 Summer 2005 the CRA discusses the status of certain First Nations groups as qualified donees. The qualified donee status is important as organizations that are qualified donees can issue “official donation receipts”. If you have questions about whether your First Nations group is a qualified donee you can call the Charities Directorate of the CRA.
First Nations and qualified donee status
The CRA’s former position was to treat certain Indian bands as Canadian municipalities for the purposes of sections 110.1 and 118.1 of the Income Tax Act. This position effectively gave qualifying bands status as qualified donees. However, in Tawich Development Corporation v. Deputy Minister of Revenue of Quebec, the Quebec Court of Appeal found that merely exercising municipal functions was not sufficient to attribute to a body the status of a municipality. Instead, the Court held that this status could only be achieved as a result of statute, letters patent, or order. Accordingly, it was necessary for the CRA to revise its position to reflect the current state of the law.
In response to the Tawich decision, the CRA consulted with the Department of Finance and, as a result, proposed technical amendments to the Income Tax Act were released on February 27, 2004. These amendments include “public bodies performing a function of government” within the category of qualified donees.
Once these amendments are passed into law, the CRA will again be able to formally recognize certain bands as qualified donees under the Act. To qualify for such recognition, a band must be considered to be a public body performing a function of government.
The CRA considers it a question of fact whether a band qualifies for this characterization. If significant bylaws have been passed under subsections 81 and 83 of the Indian Act, or if the band has reached an “advanced stage of development” as formerly required under the Indian Act, the CRA will accept the characterization. It has also accepted the characterization where a band demonstrates that it performs functions and provides services in a manner generally exhibited by a government. Examples of such activities would be if the band has been involved in negotiating land treaties (or has negotiated a settlement agreement with Canada) or if the band provides community, health, safety, and education services to its members. If a band wants to be certain about whether it can be considered a public body performing a function of government, it can apply for an advance income tax ruling in accordance with the procedures outlined in Information Circular IC 70-6. However, the ruling will be under paragraph 149(1)(c) of the Income Tax Act, which is already in force.
The proposed amendments to the Income Tax Act apply to gifts made after May 8, 2000. As such, although at law bands are not currently qualified donees, the amendments, when passed into law, will apply retroactively to transactions within past years.
As these amendments are not yet in force, the CRA cannot formally recognize a band as a qualified donee under the Income Tax Act. However, given the intent of the Department of Finance to make these amendments retroactive, it is our administrative position that a band that would, under the proposed legislation, be considered to be a public body performing a function of government may now issue official donation receipts to donors for gifts that it receives.
Whether a particular transaction qualifies as a gift at law will depend on the facts of each particular situation. As well, the CRA is not prohibiting registered charities from making gifts to a band that is considered to be a public body performing a function of government.
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Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.