A particularly complex area is the application of sales taxes to first nations individuals.
Goods and Services Tax
In general, first nations people in Canada are required to pay taxes on the same basis as other people in Canada, except where the limited exemption under Section 87 of the Indian Act applies. Section 87 says that the “personal property of an Indian or a band situated on a reserve” is tax exempt.
One area that sometimes causes confusion is the application of GST to supplies of goods and services to first nations individuals and bands. The law regarding the application of GST to first nations individuals is found in the Indian Act and not the Excise Tax Act (where the legislation for the GST is found). The reason for this is that the Indian Act predates the ETA by over a century. Section 87 of the Indian Act states that the “personal property of an Indian or a band situated on a reserve” is tax exempt.
Where a supply of a service to a first nations person or band are not found to be subject to GST under the Indian Act, they are treated as if they were zero-rated and not exempt. The significance of this is that while GST isn’t charged on zero-rated sales, the vendor can still claim Input Tax Credits. The following is a summary of the application of GST to transactions that occur on-reserve:
- GST does not apply to on-reserve purchases of goods or to off-reserve purchases of goods when the goods are delivered to the reserve by vendors or their agents (e.g., a common carrier or the postal service).
- GST does not apply to services purchased on-reserve where the benefit of the service will be realized on-reserve.
- GST does not apply to services purchased for band management or in connection with real property located on-reserve. For GST purposes, an “Indian Band” is both a band council and a tribal council, and a “band-empowered entity” is a corporation, board, council, association, society, or other organization that is owned or controlled by a band or a tribal council or other group of bands. Common examples are schools, hospitals, and social service entities. A band-empowered entity must be situated on a reserve, i.e., maintain a presence on a reserve, in order for its supplies to be treated as though they are zero-rated.
- Unincorporated first nations-owned businesses are entitled to purchase on the same GST-free basis as individuals, while incorporated first nations-owned businesses are subject to the normal GST rules.
- Band funding of first nations non-profit organizations is considered equivalent to government funding for the purposes of qualifying for the 50% GST rebate to non-profit organizations.
- Goods imported by first nations people, bands, and band-empowered entities are subject to the normal GST rules and are taxable at the time of importation unless they are zero-rated. This rule extends to imported goods delivered to a reserve by the vendor’s agent or by Canada Post.
- Purchases made on-reserve by non-first nations people are subject to GST under the normal rules.
First Nations Taxes
First nations taxes are imposed by first nations that have entered into an agreement with the Government of Canada to impose a tax on the supply of goods and services on their reserves or settlement lands. These first nations are able to impose a first nations tax through their own tax law, where authorized by federal legislation and where a tax administration agreement with the Government of Canada is in place. There are two types of first nations taxes:
- First Nations Tax (FNT) which replaces the GST is limited in its application to the following listed products: alcoholic beverages, fuel and tobacco products; and
- First Nations Goods and Services Tax (FNGST) is the broad-based tax which replaces the GST on all taxable goods and services.
All purchasers, including first nations people, are required to pay the FNT if they acquire taxable goods and services on first nations’ lands where an FNT or FNGST applies. Where a first nations tax applies, the 5% GST is replaced either by the FNT or FNGST. If an Indian band or band-empowered entity acquired taxable goods or services on reserve lands where a first nations tax applies, the supply would be subject to the FNT or the FNGST at the rate of 5%.
BC Provincial Sales Tax
First nations individuals and bands are generally exempt from BC’s PST when they purchase goods or services on first nations land. To qualify for the exemption, the goods purchased must be for the personal use of the first nations individual or for the use of the band. Personal use means for the beneficial use of the purchaser and may include business or commercial use. The exemption from BC’s PST does not apply on purchases and leases for business use in a corporation, cooperative, tribal council or band-empowered entity.
Treaty first nations governments do not qualify for the general exemptions for purchases and leases of goods or services on first nations land. This includes Nisga’a Nation citizens, Tsawwassen Nation members and Maa-nulth First Nation Lands and members of the Maa-nulth-aht First Nations.
If you have a question about a complex tax issue or would like our team of tax experts at RHN to assist you in tax planning contact RHN today!
This post has been prepared for general information purposes. It is not advice. The information presented may not fit your unique situation, please consult one of our trusted business advisors at RHN CPA for further clarification and interpretation of your circumstances.