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Business Development
Indirect Tax Opportunities for Aboriginals
February 2015
With you today….
Heather Weber,
Indirect Tax National Leader
Angela Chang,
Indirect Tax Senior Manager
Agenda
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What Indirect Taxes Are
Impact of Indirect Taxes
Refund Opportunities
Business Planning
What Indirect Taxes Are
What is Indirect Tax?
• GST/HST
• PST in various provinces (including hotel room
tax, liquor tax)
• Federal Excise Tax
• Property Transfer Tax
• Motor Fuel Tax
Exemptions
• Exemptions to Indians or Indian Bands are
offered through the Indian Act (section 87)
• The Indian Act overrides other legislations (e.g.
Excise Tax Act, Provincial Sales Tax Act, Motor
Fuel Tax Act, etc)
Exemptions
• GST/HST exemptions offered to Indians, Indian
Bands, and Band Empowered Entities
• Provincial tax exemptions offered to Indians and
Indian Bands, but not Band Empowered Entities
General Rules
• Aboriginal bands don’t generally pay GST/HST
on purchases made on reserves for band
management activities
• Certain off-reserve purchases are eligible for a
rebate (hotel accommodations, travel, meals,
etc.)
• Ontario provides a point of sale rebate for
GST/HST on off-reserve purchases for band
management activities.
General Rules (cont’d)
• Any commercial activities would be treated like a
regular business whether it is located on reserve
or not
• First Nation trusts are treated like regular trusts
with no special exemption
General Rules (cont’d)
• PST exemptions in BC, Saskatchewan and
Manitoba for purchases on reserve
• Partnerships with First Nation band partners
may receive special PST Treatment
• Property Transfer Tax applies on purchase of
land even if land is later added to the reserve.
• Motor fuel tax exemption available
Impact of Indirect Taxes
Impact of Indirect Taxes
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Increased costs
Increased complexity
Less competitive
Reduced funding and resources
Impact – Increased Cost
Increased Cost
• Bands are entitled to recover some of the GST/HST
they pay for activities related to band management.
– 50% on most off-reserve purchases
– 100% on travel related costs (hotel, transportation, meals)
• Where rebates are not applied for, or are filed
incorrectly, it becomes a cost to the band and to the
members
Impact—Increased Complexity
• Different tax implications can arise doing
business in a different province.
• When equipment is moved even on a temporary
basis to one of the PST provinces there will be a
tax application.
Impact—Increased Complexity
• Goods and services provided in a different
province may be subject to a different tax rate.
• Purchases made from outside of a PST province
for use in a PST province may require tax to be
self assessed.
Impact - Less Competitive
Aboriginals are involved in all sorts of business
ventures. If the indirect taxes are not handled
correctly they will have a big impact on the
bottom line.
The GST/HST applies to most transactions and
when it is considered up front the costs can be
managed.
Example—Construction
Construction project off reserve
• a Band is involved in a construction business
venture
• the Band is carrying on commercial activities
• should be registered for GST to be able to
recover the GST paid on all purchases
• be responsible for collecting tax from its
customer and remitting the tax to CRA
• be responsible for filing regular GST returns
Example—Construction (cont’d)
Construction project off reserve
• purchase gravel and cement for the project and
pay PST because delivery is off reserve
• OR
• For example in BC a band could ask supplier to
deliver gravel and cement on reserve to get PST
exemption, but then have to arrange for
transportation which would add extra costs.
Example—Trust
Set up a Trust to manage funds
• Trust is set up on reserve
• The only beneficiary is the Band and/or its
members
• Trustees are Band members
Example—Trust (cont’d)
Set up a Trust to manage funds
• The Trust is not considered to be a Band
Empowered Entity
• Trust must pay GST/HST on investment
management fees, trustee fees, etc
• No input tax credits, and no rebates of the
GST/HST paid
Example – Not Paying Tax
Company operates a business next to a reserve
• Registered for GST and PST
• Aboriginal Shareholder acquired all materials
and supplies for business personally on a
reserve and tax was not paid.
• Goods were then transferred to the Company.
• The Company was not charged tax.
• Reassessments cover more than four years.
Example—Not Remitting Tax
Status Indian person provides consulting services
from his home on reserve
• Charges consulting fee to off-reserve
businesses
• Invoices note “GST-included”
• $50,000 consulting fee includes $2,380 of GST
• GST not remitted to CRA
• Over a 4-year period, close to $10,000 of GST
owing
Refund Opportunities
Funding and Resources
There are resources and sources of funding
available depending on the operations
• Rebates
• Municipal Determination
• Qualified Donee Status
Rebates
Rebates
• Where a band qualifies they can claim back a
rebate of 50% of all GST/HST paid on band
management activities
• 100% rebate available for travel costs incurred
off reserve related to band management
activities
• Tax paid in error rebate for on reserve
purchases where tax was paid
Rebates
Rebate challenges
• Having a proper system in place to track the tax
paid and to support your documentation
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Code 1
Code 8
Public Service Body Rebate
Documentation supporting tax paid
Documentation supporting where goods or services
are delivered
Municipal Determination
Municipal Determination
• for GST purposes only
• for Bands providing services similar to a
municipality such as housing, road maintenance,
education, health care, policing, firefighting, etc.
• rebate of 100% of the GST paid on activities
related to the municipal activities
Qualified Donee Status
Qualified Donee Status
• an Income Tax application that can be made for
certain bands to allow them to continue to issue
donation receipts
• can be important for receiving funding and a
donation receipt can be a good incentive for
donors
Business Opportunities
Business Opportunities
Various business structures can be used when
starting a project to obtain the most beneficial
results.
With careful planning the impact of the GST and
PST can be controlled and not end up being a
surprise cost.
Structures
Structures make a difference
• A corporation incorporated by a Band is not
given any special tax considerations
• A partnership with a Band as a partner is given
special considerations
• Tax is not the only factor in the structuring
decisions
Opportunity Example
Using a Partnership with a band as a partner
allows the Partnership to acquire goods on a
reserve exempt of PST.
Other Planning Opportunities
As Bands are involved in many different ventures it
is important to review all of them to ensure that
all tax opportunities and issues are reviewed.
QUESTIONS?
Contact Information
Heather Weber
Phone: 250-979-2575
Email: [email protected]
Angela Chang
Phone: 778-374-2121
Email: [email protected]