HST: Implications for First Nations’
Governments and Businesses
First Nations Tax Administrators Association
17th Annual Forum
September 16, 2010
Enoch Cree First Nation, Edmonton, Alberta
Heather Mahony and J. Berry Hykin
(with thanks to Matt Boulton)
Introduction
– Ontario and British Columbia harmonized their provincial
sales tax systems with the federal GST effective July 1,
2010.
– HST already in effect in Nova Scotia, Newfoundland and
New Brunswick (as of Apr 1, 2007)
– HST levied under Part IX of the Excise Tax Act (“ETA”)
– Applies to the same tax base and is subject to the same
rules as the GST
• some province-specific exceptions, e.g., point of sale rebates on
limited range of consumer products; transitional rules temporarily
restricting the availability of ITCs for large businesses for
provincial portion of the tax
Heather Mahony and J. Berry Hykin
Legislative /Administrative Framework
– Federal Government has passed legislation to amend the
ETA to include Ontario and BC as “participating” HST
provinces
– BC and Ontario have passed amending legislation to wind
down the existing provincial sales tax as of July 1, 2010
– Province-specific rules and practices are set out in
regulations and in the Federal/Provincial Comprehensive
Integrated Tax Coordination Agreements
Heather Mahony and J. Berry Hykin
Implementation continues to be controversial
– UBCIC: “UBCIC strongly opposes implementation of the HST because it
stands to increase the poverty of our people and of all poor British Columbians,
and because there was no consultation with BC First Nations on
implementation of the new tax regime.” (March 2010)
– BC: A successful anti-HST petition led to a special legislative committee who
voted to refer the tax to a referendum in September 2011 rather than to refer the
adraft anti-HST bill to straight to the legislature. Premier Campbell has said he
will require only a simple majority before scrapping the HST.
– Ontario: First Nations in Ontario successfully lobbied Ottawa to maintain an
exemption of the provincial portion of the tax off-reserve. The exemption had
been in place for 30 years under the Retail Sales Tax Act, and extends an
exemption to Status Indians to eligible goods/property/services purchased offreserve.
Heather Mahony and J. Berry Hykin
This presentation examines the implications of the HST
on:
1. taxation by First Nations governments
2. Indian Act and administrative tax exemptions, and
3. First Nations businesses.
Heather Mahony and J. Berry Hykin
Previous PST and GST Tax Bases:
– Original base of PST was the sale of “tangible personal
property”
• Over time this base was expanded to include a number
of intangibles
– GST, by comparison, is a form of “value-added tax” aimed
at taxing the value of all goods and services at the final
stage of consumption.
Heather Mahony and J. Berry Hykin
HST Value-Added Tax Regime:
– Under the HST, goods and services are treated in three
ways:
i. Taxable
ii. Exempt
iii. Zero-rated
– The HST retains GST exemptions and zero-ratings
• B.C. has also required that certain provincial exemptions continue
to apply under the HST resulting in tax rebates at the till on certain
supplies.
– Except where an Indian Act or administrative exemption
applies, consumers are subject to immediate cost increases
by having the 7% BCVAT (8%OVAT) now added to certain
goods/services which were previously PST/RST exempt
Heather Mahony and J. Berry Hykin
1. Impacts on First Nations Taxation:
– FNT under the Budget Implementation Act, 2000, S.C.
2000, c. 14, part 4.
– FNGST under the First Nations Goods and Services
Tax Act, S.C. 2003, c. 15
– Unaffected: Real Property Taxation under FSMA and
Indian Act s. 83.; Aboriginal Personal Income Tax
(where applicable); Cowichan Tribes Tobacco Tax
Heather Mahony and J. Berry Hykin
First Nation Tax (FNT) Under the Budget
Implementation Act, 2000
–
–
–
The Act allows First Nations listed in the schedule, to tax
the on-reserve sale of three commodities – tobacco
products, alcoholic beverages and fuel – at the same rate
as GST.
Under the HST, wherever the FNT applies, retailers and
service providers collect the entire HST from non-exempt
consumers, but there are point of sale rebates for the
provincial portion of the tax on some items (e.g.: motor
fuels).
Where the HST applies, those consumers entitled to an
exemption under s. 87 of the Indian Act will pay only 5%.
Heather Mahony and J. Berry Hykin
FNT – Taxable Sales
Status Indian
Consumer –
Alcohol, Fuel
Tobacco
5%
5%
Non-Exempt
consumer – rebate
applies (motor
fuel, children’s
clothing, etc.)
Point
of
Sale
Status Indian
Consumer –
other goods or
services
0%
12%
Heather Mahony and J. Berry Hykin
Non-Exempt
consumer – no
rebate applies
First Nations GST Under the First Nations Goods and
Services Tax Act (the “FNGSTA):
–
The FNGSTA authorizes First Nations named in the
Schedule to impose a law implementing a tax equivalent
to the GST on reserve and/or settlement lands.
•
–
–
–
Applies to consumption by Status Indians and others
Canada vacates GST room
Under tax administration agreement with the First Nation,
CRA is responsible for administration, enforcement and
collection of the FNGST
CRA remits to the First Nation an amount it estimates to
be the net tax revenue attributable to consumption on the
lands to which the FNGST applies.
Heather Mahony and J. Berry Hykin
HST Implications for FNGST First Nations:
• Non-exempt consumers acquiring taxable goods and
services on the reserve will be liable for the provincial
portion of the HST (BC: 7%; Ont. 8%) and the FNGST
(5%) for a total of 12%.
• Status Indians and First Nations will pay only the FNGST
(5%) and NOT the provincial portion of the HST.
– Consequently, merchants on FNGST reserves will be
back in the business of asking to see status cards in
order to apply the exemption
Heather Mahony and J. Berry Hykin
FNGST – Taxable Sales
Status Indian
Consumer –
(rebate/no rebate
5%
5%
Non-Exempt
consumer – rebate
applies (motor
fuel, children’s
clothing, etc.)
Point
of
Sale
Nisga’a Citizen
(e.g.) (unless
rebate applies –
then 5%)
12%
12%
Heather Mahony and J. Berry Hykin
Non-Exempt
consumer – no
rebate applies
HST Implications for FNGST/FNT First Nations Examples:
Example 1 – FNT is collected
An Indian individual purchases a package of cigarettes and a magazine from a convenience store on a reserve
with an FNT in British Columbia. The individual presents their certificate of Indian status card2, at the time of
payment for the purchases. The individual will be required to pay the FNT (5%) on the cigarettes. Just the
provincial part of the HST (7%) on the cigarettes and the HST (12%) on the magazine will be relieved under TIB
B-039.
Example 2 – FNGST and the provincial part of the HST are collected
A Nisga’a citizen wishes to attend a B.C. Elders gathering being held at a resort located on the St. Mary’s reserve
in British Columbia. The St Mary’s First Nation has imposed an FNGST. The registration fee for the gathering
includes a 12% tax composed of the FNGST (5%) and the provincial part of the HST (7%). As tax relief under
section 87 of the Indian Act no longer applies to the Nisga’a Nation and its citizens, they are required to pay the
provincial part of the HST in addition to the FNGST.
Example 3 – HST is fully relieved
A Tsawwassen First Nation member purchases a new sofa from a store in Delta, British Columbia. The individual
presents their INAC issued Indian status card at the time of payment for the purchase. The store agrees to
arrange delivery of the sofa to the Tsawwassen member’s residence on Tsawwassen lands that were formerly
reserve lands under the Indian Act. The purchase of the sofa is fully relieved of HST as the provisions of TIB B039 have been met. Although the Tsawwassen are now a self-governing First Nation, members who are Indians
are still entitled to a transitional eight-year period of tax relief until April 30, 2017.
Heather Mahony and J. Berry Hykin
Source: CRA GST/HST Notice No. 254 (May 2010)
Is there an argument for re-negotiating tax administration
agreements to take into account the 12% rate?
-
-
-
2006 amendments to the First Nations Goods and Services Tax
Act to include Part 2: enables a First Nation listed in Schedule 2
to enact a law that imposes a direct tax like a particular
provincial tax, if the particular province agrees and is also listed
in the Schedule.
So far, none of the HST provinces have agreed to vacate their tax
room for a First Nation to impose a PST-like tax
Harmonization may give First Nations leverage to lobby these
provinces to vacate their tax room to FNGST/FNT First Nations,
and to allow the full 12% HST attributable to the reserve to be
flowed back to the First Nation
Legislative amendment(s) may be required
Heather Mahony and J. Berry Hykin
2. The HST and Tax Exemptions to Indians, First
Nations and Band-Empowered Entities (BC).
• General: Unless an Indian Act or CRA administrative
exemption applies, First Nations and their members will pay
more for some goods and services because the HST will apply
to some purchases that were exempt from provincial sales tax.
– E.g., off-reserve (in BC), First Nations and their status
members will pay more for such items as hair care,
drycleaning, telephone service, some professional services
(e.g., accounting)
– Consumers will not see an increase on items eligible for a
point of sale rebate on the provincial portion of the tax (in
BC, e.g., motor fuels, books, children’s clothing, car seats)
Heather Mahony and J. Berry Hykin
Tax Exemption impacts (cont’d)
• Aboriginal Persons and entities may qualify for tax
exemptions from two sources:
– Section 87 of the Indian Act
– Administrative Exemptions under CRA’s policy re: s. 87 of
the Indian Act
87. (1) Notwithstanding any other Act of Parliament or any Act of the legislature of a province,
but subject to section 83 and section 5 of the First Nations Fiscal and Statistical Management
Act, the following property is exempt from taxation:
(a) the interest of an Indian or a band in reserve lands or surrendered lands; and
(b) the personal property of an Indian or a band situated on a reserve.
(2) No Indian or band is subject to taxation in respect of the ownership, occupation, possession or
use of any property mentioned in paragraph (1)(a) or (b) or is otherwise subject to taxation in
respect of any such property.
Heather Mahony and J. Berry Hykin
Tax Exemption impacts (cont’d)
• HST will follow the same rules and policies as the (federal) GST.
• Primary benefit: CRA’s administrative policy interprets the
entities to which a tax exemption applies more broadly than the
provincial governments’ administrative policies.
• For example:
– Pre-HST exemption to provincial sales tax applied only to Indians,
Indian Bands, (and Band Councils – Ont.). CRA’s administrative
policy also includes exemptions for incorporated Band-Empowered
Entities acquiring goods/services for band management activities
– CRA’s policy re: leases of tangible goods is broader. (discussed further
below)
– CRA’s policies provide a tax exemption to Indians, Indian Bands, and
Band-Empowered Entities for purchases from a remote store, whereas
the provincial policies did not provide for this exemption, and such
purchases were subject to provincial sales tax. (see GST/HST Policy
Statement P-246)
Heather Mahony and J. Berry Hykin
Tax Exemption impacts (cont’d)
• CRA’s interpretation of exemption entitlements, for the
purpose of determining the application of GST and HST,
includes:
– Indians, Indian Bands, or unincorporated band-empowered entities may acquire property on
reserve without paying the GST/HST, provided they have the appropriate documentation.
– Corporations not generally eligible for relief from the GST/HST but the tax does not apply to
incorporated band-empowered entities acquiring goods/services for Band management
activities.
– Indians, Indian Bands and unincorporated and incorporated band-empowered entities
purchasing for band-management activities may acquire property off reserve without paying
GST/HST provided the property is delivered to a reserve.
– Bands and Band-empowered entities may claim an exemption for services acquired on- or offreserve for either band management activities or real property on-reserve
– Intangible personal property will be considered to be situated on a reserve where there are
sufficient factors to connect it to the reserve.
– Memberships are exempt if the rights under them are exercised on reserve
• See CRA Technical Interpretation Bulletin B-039
Heather Mahony and J. Berry Hykin
Specific Cases:
a) Rebates for Travel Expenses; Conference Fees
– If travel expenses relate to band management activities or
real property on reserve, then the band or bandempowered entity can claim a rebate for eligible expenses
– Conference fees for officials or employees of Bands or
band-empowered entities engaged in band management
activities are exempted from paying tax so long as a
certificate is supplied to the conference organizer.
Heather Mahony and J. Berry Hykin
b) Legal Services (BC)
– PST exemptions only available when legal services were:
•
performed on reserve,
•
related to real property, or
•
were provided in respect of consultation or treaty or
land claims negotiations (SSTAct Reg. 84/58 s 8.5)
– GST/HST exemption available to bands and bandempowered entities when purchasing legal services on- or
off-reserve for band management activities.
•
A considerably broader exemption
Heather Mahony and J. Berry Hykin
c) Restaurants on Reserve
–
required to collect the full 12% HST from non-Status
customers (restaurant meals previously PST-exempt).
– Status-Indian customers are exempt from paying HST on
restaurant bills.
– Where FNGST is in effect:
•
Non-Status customers pay: FNGST (5%) and
BCVAT(7%)/OVAT(8%) - 12% total
•
Status customers pay only the 5% FNGST
Heather Mahony and J. Berry Hykin
d) Liquor Sales on Reserve
–
Where FNT/FNGST applies to alcohol sales on reserve:
•
Status customers pay: 5%
•
Non-Status customers pay 5% + 7%BCVAT = 12%
– Indian Act tax exemptions still apply
Heather Mahony and J. Berry Hykin
e) Hotels on Reserve (BC)
–
–
–
–
–
Hotel rooms previously PST-exempt, but subject to a
provincial hotel room tax (8%)
Hotel room tax eliminated to coincide with HST
implementation, but 2% Municipal and Regional District
Tax still applies (where in effect)
Transitional rules apply to purchases of short term
accommodation – See: Ministry of Finance HST Notice
#9
Exemptions for Status individuals, bands, and bandempowered entities still apply
Hotel owning First Nation corporations have the
advantage of being able to collect ITCs on the full HST
amount of supplies used to bring the service tocustomers.
Heather Mahony and J. Berry Hykin
f) Tobacco Sales on Reserve (BC)
–
–
Provincial tobacco tax continues.
HST is now applied to the price at the till.
•
increase of 7% in the price of tobacco products for
non-exempt customers
– FNT/FNGST First Nations charge 12% to non-exempt
customers; 5% to exempt customers.
– First Nations who have released their exemptions (e.g.,
Nisga’a) will have to charge their citizens the full 12%.
Heather Mahony and J. Berry Hykin
g) Land Leases and Rentals on Reserve (BC)
–
Leases of reserve lands to non-exempt entities and
individuals subject to full HST (previously PST-exempt)
– Transitional rules apply – CRA info sheet GI-092
– FNGST: status Indians pay 5% tax
– Long-term residential rentals are HST exempt.
•
Lessors unable to collect input tax credits for the cost
of building or acquiring the property, therefore those
qualifying for Indian Act exemptions retain an
advantage
Heather Mahony and J. Berry Hykin
h) Equipment Leases on Reserve
–
Leases for tangible personal property subject to HST.
– CRA’s policy:
• if the tax exemption applies when the purchaser acquires the lease
(e.g., purchaser is an Indian, band, band empowered entity leasing
for band management activities; property delivered to reserve),
then the exemption applies for the duration of the lease
• If the tangible good becomes situated on reserve during the lease
term, then the HST will not apply to the remaining lease payments
(as in when Indian moves to reserve)
–
See CRA Policy P-230R
Heather Mahony and J. Berry Hykin
i) Gasoline Sales on Reserve (BC)
–
–
–
A point of sale rebate applies to motor fuels.
The provincial 7% (BCVAT) portion of the HST does not
apply to gasoline, ethanol, diesel and biodiesel when used
in motor vehicles.
Indians, Bands and unincorporated Band entities still
exempt (except where FNT/FNGST, or exemptions
released by agreement)
Heather Mahony and J. Berry Hykin
3. Impact on First Nations Businesses - Input Tax
Credits
–
ITCs available on both the federal and provincial portion
of the HST (note transitional rules for large businesses)
• Un-incorporated businesses whose purchases
previously qualified for PST exemptions lose this
competitive advantage, as other businesses now able to
claim ITCs for the full HST paid
– Sales to Indians, Bands and band-empowered entities are
treated as taxable sales, even when subject to Indian Act
or administrative exemptions, and the supplier is entitled
to input tax credits.
Heather Mahony and J. Berry Hykin
Conclusion:
–
–
–
exemptions will likely expand for First Nations
governments and band-empowered entities to match
more expansive CRA policies
First Nations’ businesses will benefit from increased
availability of ITCs, but may lose some previous
business advantages
Will not be any windfalls for First Nations collecting
the FNGST or FNT; however, the introduction of the
HST may create leverage for these First Nations to
argue for a share of the provincial portion of the HST
Heather Mahony and J. Berry Hykin
Thank you!!
heather@woodwardandcompany.com
berry@woodwardandcompany.com
Heather Mahony and J. Berry Hykin