Frequently Asked Questions

1. HOW DOES THE FIRST NATIONS TAX COMMISSION DIFFER FROM THE FORMER INDIAN TAXATION ADVISORY BOARD?

The ten-member First Nations Tax Commission (FNTC) is one of the four institutions created as a result of the passage of the First Nations Fiscal and Statistical Management Act (FSMA) which received Royal Assent in March 2005. It is the successor organization to the Indian Taxation Advisory Board.

In the past, ITAB provided many functions similar to provincial government bodies that regulate their local government property tax authorities. However, there were important differences. For example, the Board was “advisory” in nature, having only the power of recommendation. The power to approve, or not to approve, First Nation taxation laws remained with the Minister of Indian Affairs and Northern Development. ITAB also faced many unique challenges because the First Nation property tax system operates within a legislative, legal and policy context that is very different from local government tax systems.

The enhanced authority of the FNTC will allow property tax revenues to finance infrastructure more effectively and reduce other barriers to economic development on First Nation lands. The FNTC will operate as part of an overall system of fiscal governance for First Nations. It will be responsible for the development and regulation of the First Nation property tax system. In carrying out this role, the Commission will work with First Nations, other First Nation institutions, the federal, provincial and local governments.

The Commission will ensure the First Nation property tax system is administratively efficient, harmonized with the rest of the country and is fair to on-reserve taxpayers. To do this the FNTC will set administrative standards, regulate matters pertaining to its property tax mandate, enforce these regulations, mediate disputes and act on behalf of the collective interest of First Nation tax administrations.

2. HOW WILL THE FNTC WORK?

The First Nations Tax Commission operates as part of an overall system of fiscal governance for First Nations. It is responsible for the development and regulation of the First Nation property tax system. In carrying out this role, the Commission works with First Nations, other First Nation institutions, the federal, provincial and local governments.

The Commission will continue to ensure the First Nation property tax system is administratively efficient, harmonized with the rest of the country and is fair to on-reserve taxpayers. To do this the FNTC will set administrative standards, regulate matters pertaining to its property tax mandate, enforce these regulations, mediate disputes and act on behalf of the collective interest of First Nation tax administrations. More specifically, the FSMA mandates the FNTC to:

· approve local revenue laws under FSMA and continue to advise the Minister on the approval of section 83 by-laws;

· continue to advise and assist the Minister on policy issues relating to the implementation of First Nation property taxation powers, and on any matter or policy put to it by the Minister;

· provide professional and objective assessments of First Nation property taxation laws pursuant to their enabling legislation;

· prevent and minimize the costs of disputes by providing a mechanism for hearing the concerns of affected parties under First Nation taxation regimes and for promoting the reconciliation of conflicting interests. The Commission will have measures for facilitating solutions and, if necessary, mediating;

· set standardized administrative practices for First Nation real property tax administrations;

· provide certified training courses to ensure standards are achieved;

· develop national standards and regulations over matters pertaining to First Nation property tax systems;

· regulate and, where required, enforce these standards to provide greater assurance to taxpayers and investors on First Nation lands;

· provide education in order to raise awareness of the benefits of First Nation taxation between First Nations and the rest of the country;

· certify First Nation property tax administrations for debenture borrowing; and

· provide the regulatory certainty to enable property tax revenues to support debenture financing, thereby reducing the cost of local infrastructure.

3. WHAT IS REAL PROPERTY TAX?

Property taxes are a major source of revenue for local governments. In fact, it is their single most important source of revenue, including special property-based taxes such as business taxes. Other sources of local government revenue usually include licenses and permit fees, receipts from fines and penalties, investment income, grants and transfer payments. In most cases, property taxes in Canada are imposed to cover the costs of local government that are not met from other revenue sources or transfers from federal and provincial governments.

Property taxes are the main source of funding for the provision of local services, such as roads, water, sewage, sanitation, snow removal, fire and police protection, building and plans inspection. As a result, property taxes commonly are perceived as taxes paid for the benefit of using local government services. These taxes represent "a way of proportioning the net costs of local government among all taxpayers on the basis of wealth as measured by their assessed property value.”

For First Nations, property taxes provide an independent, stable and flexible source of revenue, which can be reinvested in First Nation communities to build economic infrastructure, attract investment, and promote economic growth. Property taxation also establishes jurisdiction and provides First Nations with improved powers to control land development.

4. WHAT IS S.83 TAXATION UNDER THE INDIAN ACT?

Section 83 of the Indian Act provides First Nations with by-law making authority for real property taxation on reserve. First Nations exercising taxation under section 83 must pass the following by-laws: Real Property Tax and Assessment Bylaw, Expenditure By-law, and an annual Rates By-law. All by-laws are subject to Ministerial approval, upon the recommendation of the FNTC.

5. WHAT IS TAXATION UNDER THE FIRST NATIONS FISCAL AND STATISTICAL MANAGEMENT ACT?

The FSMA provides First Nations with law making authority for real property taxation on First Nation lands. First Nations wishing to access the FSMA taxation powers must first pass a band council resolution requesting that the Minister add the First Nation to the FSMA Schedule. Once the Governor-in-Council adds the First Nation to the FSMA Schedule, the First Nation’ tax powers are drawn from the provisions of the FSMA. As well, any section 83 bylaws that the First Nation may have had in place are moved into the FSMA framework. Property taxation under the FSMA requires taxpayer consultation, property tax and assessment laws, and annual laws for expenditures and rates. All laws are subject to the review and approval of the FNTC.

6. WHAT ARE THE MAIN DIFFERENCES BETWEEN S.83 TAXATION AND TAXATION UNDER THE FSMA?

The FSMA provides an enhanced regulatory framework for First Nation real property taxation. It differs with s.83 taxation in six fundamental ways:

· Clarity of laws – FSMA provides clear statutory authority for local revenue laws including taxation, business licensing, and development cost charges.

· Institutional support and protection of local revenues - FSMA provides clear statutory protection for First Nation local revenues (including taxation revenues).

· Enforcement provisions - FSMA provides clear statutory authority for First Nations to enforce their local revenue laws.

· Approval authority - FSMA provides for FNTC review and approval of local revenue laws, bypassing delays associated with Ministerial approvals.

· Improved taxpayer relations provisions - FSMA provides clear statutory requirements for taxpayer notice and due process.

· Access to debenture financing system - FSMA provides access to the infrastructure debenture financing system, allowing First Nations to lever their property tax revenue for financing large scale infrastructure projects.

7. HOW MANY FIRST NATIONS LEVY PROPERTY TAXES ON RESERVE, AND HOW MUCH REVENUE IS BEING GENERATED?

First Nations exercising taxation jurisdiction continue to increase annually. Currently, approximately 120 First Nations in Canada are now levying property taxes on reserve.

Annual revenues to First Nations from taxation exceeded $49 million for 2005-2006. Since 1989, more than $294 million has been generated through property taxation on reserve.

8. DO FIRST NATIONS HAVE SUFFICIENT PROPERTY TAX BASES FROM WHICH TO COLLECT TAX REVENUES?

All First Nations have potential property tax bases; however, some are more administratively viable than others. For those First Nations that do choose to enter property taxation, the exercise of their jurisdiction must be supported. Property tax is an important component of government revenue that is essential to the provision of services. Supreme Court of Canada rulings have reinforced the importance of these powers for First Nations governments.

Approximately 120 First Nations are collecting property tax in diverse circumstances across Canada. The composition of these tax bases is as diverse as First Nations themselves. Rural and remote First Nations have greater focus on utility, railway, industrial, or recreational taxpayers, while First Nations that are closer to municipalities are likely to have more residential and commercial taxpayers.

9. WHAT CAN BE TAXED?

Agricultural Permits and Leases

Leased agricultural and is subject to taxation. First Nations give leases to agricultural lands through ministerial leases or informal agreements often called "buckshee" leases. These latter are private agreements between the First Nation or an individual member and a non-member.

Oil, Gas, Timber and Resource Leases

Surface leases may be taxed as interests in reserve land.

Commercial Land Use Lease

Commercial leases or reserve land and facilities on those leases can be taxed. This is income for the First Nation over and above the lease payments.

Rental Leases

Rental leases can be subject to taxation. Tax revenues would be independent of any rental payments. However, the lease or rental agreement should provide for the condition of taxation.

Utilities

Utility companies which are not government corporations are taxable. Frequently, utilities involving power, telephone and natural gas lines are located on rights of way granted for public roads through a reserve.

Grants in lieu of Taxes

Grants in lieu of taxes, with tax legislation, First Nations can negotiate with both government agencies and utilities for grants in lieu of taxes.

10. WHAT ARE THE STEPS IN LEVYING FN PROPERTY TAX?

Whether exercising taxation under the FSMA or s.83 jurisdiction, there are five stages to exercising tax jurisdiction:

i.) Decision to Tax

In making the decision to exercise real property taxation, a Chief and Council of at First Nation has considered how much revenue will likely be generated, the estimated costs of implementation and administration, and under which legal authority it wishes to exercise jurisdiction. For FSMA taxation, the Council must make a request to the Governor in Council (GIC) to be added to the FSMA schedule (The FNTC has sample Band Council Resolutions for making requests to be added to the FSMA schedule).

ii.) Development of Tax Jurisdiction

The First Nation develops and prepares taxation bylaw under section 83 or a local revenue law under the FSMA. The First Nation should consult with the FNTC to determine the various requirements or may use models available on the FNTC website. Taxation, assessment, rates and expenditure bylaws and local revenue laws are free of charge. A visit to your community for tax presentation by an FNTC staff member can also be arranged. The local revenue law or tax bylaw is then submitted to FNTC for its review.

iii.) Communications

This stage is a critical. All affected parties must be informed of the First Nation's decision to tax in order to ensure a smooth transition. Affected parties include:

  • the potential taxpayers
  • the municipality from which the First Nation may be assuming tax jurisdiction
  • members of the First Nation
  • the MP and MLA for the riding in which the First Nation is located
  • the provincial assessment office

To assist in this stage, FNTC can provide sample letters and general advice on the proper wording of the First Nation's correspondence to these parties.

iv.) FNTC Review and Analysis

Once the First Nation has submitted its bylaw or local revenue law to FNTC, it is analyzed to ensure that it is legally sound. As such, revisions may be required. If so, FNTC will provide to the First Nation its detailed analysis, which highlights any required changes.

v.) Approvals

For local revenue laws under the FSMA, all laws are subject to the review and approval of the FNTC. Approval criteria includes: compliance with the Canadian Charter of Rights and Freedoms, conforms to the principles of natural justice, conforms with the FSMA and supporting regulations, and FNTC policy. Once satisfied all criteria have been met, the FNTC will approve the law.

For section 83 bylaws, the FNTC makes its recommendation to the Minister whether to approve the First Nation's bylaw or not. A favourable recommendation means that the bylaw complies with the Canadian Charter of Rights and Freedoms, conforms to the principles of natural justice, conforms with the Indian Act and FNTC policy. Based on FNTC's recommendation, the Minister will approve, or not approve, the proposed bylaw.