First Nations Tax Commission Review Procedures Regulations
Vol. 141, No. 23 — November 14, 2007
FIRST NATIONS FISCAL AND STATISTICAL MANAGEMENT ACTFirst Nations Tax Commission Review Procedures Regulations (PDF Version)
P.C. 2007-1664 November 1, 2007
Her Excellency the Governor General in Council, on the recommendation of the Minister of Indian Affairs and Northern Development, pursuant to section 33, paragraph 36(1)(b) and subsection 36(3) of the First Nations Fiscal and Statistical Management Act (see footnote a), hereby makes the annexed First Nations Tax Commission Review Procedures Regulations.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
A core group of First Nations led the development of the First Nations Fiscal and Statistical Management Act (the Act) which came into force on April 1, 2006. It establishes four institutions: the First Nations Tax Commission (FNTC), the First Nations Finance Authority (FNFA), the First Nations Financial Management Board (FMB) and the First Nations Statistical Institute (FNSI).
The FNTC approves First Nation real property tax laws made under the Act and reconciles First Nation community and taxpayer interests. The FNFA permits interested First Nations to work co-operatively in raising long-term private capital at preferred rates for roads, water, sewer and other infrastructure projects. The FMB assists all First Nations in strengthening their local financial management regimes and provides the independent financial management assessment services required for entry into the FNFA borrowing pool. The FNSI assists all First Nations in building their local information systems and works with Statistics Canada and provincial statistical agencies to improve the accuracy and completeness of First Nation information.
The establishment of the institutions responds to requests from First Nations to enhance the tools available to them to support good government, economic growth and ultimately the quality of life on reserve.
There are 13 priority regulations required in order for the four institutions to become operational. A staged approach to finalizing these 13 regulations has been adopted to ensure the four institutions become operational as soon as possible, while work with First Nation partners on outstanding policy and administrative procedures continues.
The four regulations in the first regulatory proposal, which are now in force, are required for the operation of the FNFA, the governance structure of the FNTC and the statistical relationships of the FNSI.
This second regulatory proposal includes seven regulations affecting the operations of FNTC and the FMB, and the property tax regimes established by the Act.
The final regulatory proposal will include adding, to the Schedule, the names of First Nations wishing to operate property tax systems under the Act, and the related Property Assessment and Taxation (Railway Right-of-Way) Regulations.
With respect to the seven regulations in this proposal, one set of regulations, the First Nations Tax Commission Review Procedures Regulations, establishes the use of panels made up of one or more FNTC commissioners in the review of complaints in respect of First Nation laws as well as the procedures to be used by the FNTC in the review of these complaints.
One set of regulations, the First Nations Local Revenue Law Review Regulations, establishes the use of panels made up of one or more FNTC commissioners for the approval of First Nation local revenue laws.
Three regulations establish requirements for the content of local revenue laws made by First Nations. These are the First Nations Assessment Appeal Regulations, the First Nations Assessment Inspection Regulations and the First Nations Taxation Enforcement Regulations.
The First Nations Rates and Expenditure Laws Timing Regulations establish the date participating First Nations must make the annual rates and expenditure laws related to their property tax regimes.
The Local Revenue Management Implementation Regulations address the implementation by the FMB of co-management and third-party management of a First Nation's local revenues to support both First Nation property taxation and the newly established bond regime.
Each set of regulations is described in more detail in the sections below.
It is a policy of Indian and Northern Affairs Canada (INAC) to integrate a gender-equality analysis into all of its work, including the development of regulations and legislation. A complete gender-equality analysis of the impact of the initiative and its four institutions was undertaken and reviewed and approved by the Gender Equity group within INAC.
The analysis found that the Act and its associated regulations strengthen the ability of First Nations to respond to the needs of all of their community members. It is designed to support First Nations in improving economic and social conditions on reserve, to the benefit of stronger family units and women and children in particular. Lack of employment opportunities and bleak prospects are known to increase the incidents of violence and abuse in family units. The potential for the institutions to assist First Nations to improve the employment climate in certain communities could potentially have a positive impact on these situations. Therefore, the institutions are seen to have a positive gender-equality influence at the community level.
First Nation property tax regimes established under the Act would be harmonized with the corresponding provincial regimes which, for the most part, establish tax rates based on the budgetary requirements of the jurisdiction. Under a budget-based property tax system, female and male taxpayers are both charged on the basis of the assessed value of the property which they occupy. The standard manner in which taxes are calculated and charged does not seem to favour men or women, thus no inequities would be perpetuated by any property tax regimes created under the Act.
Within First Nation communities, there is a growing call for improvement to general financial and statistical management. First Nation women and First Nation womens' organizations are on the forefront seeking changes which allow greater transparency of process, stronger accountability of leadership, and actual citizen input to decision-making. The institutions are poised to help meet this identified need. For example, at the community level, FMB would support best practices and build capacity in financial management, while the FNSI would strengthen local data and information systems as essential elements of good decisionmaking and accountability. These improvements would benefit all members of First Nation communities, women and men alike, and ultimately, may assist in establishing a balance between the genders.
Overview of consultations
INAC, jointly with the Indian Taxation Advisory Board (ITAB), the First Nations Finance Authority Inc. (FNFA Inc.), and the First Nation Advisory Panels for the FMB and the FNSI, held public consultations on drafts of the regulations. The consultation period commenced July 11, 2005, and ended September 30, 2005.
First Nations were notified of the consultations by a letter from the Minister. The draft regulations, summaries of each and information outlining how comments could be submitted, were posted on the Web site for the legislation: www.fnfi.ca. Consultation sessions, open to the general public, were held in Moncton, New Brunswick, and at Westbank First Nation in British Columbia. A focussed consultation session was held with taxing First Nations in Richmond, British Columbia, and another with the Canadian Property Tax Association in Calgary, Alberta. Provincial governments were consulted during the development of the Act and support the efforts to harmonize First Nation property tax regimes with those of adjacent municipal jurisdictions. Details on the results of the consultations are provided in the sections on the specific regulations.
The regulations were pre-published in the Canada Gazette, Part I, on May 26, 2007, for a period of 30 days to provide an opportunity to interested parties and the general public to comment. Comments were received from ITAB. The comments were of a technical nature and no one objected to the proposed regulations.
Overview of costs and benefits
There are no implementation and ongoing costs which can be directly associated with any of these seven regulations. The work which will be carried out by each of the institutions pursuant to the regulations is only a portion of the work undertaken by the institutions which will be covered under a funding arrangement between each of the institutions and the Government of Canada.
The annual funding for the FNTC is approximately $4.5 million per year for the next three years. The annual funding for the FMB is approximately $4 million per year for the next three years. The annual funding for the FNFA (not including start-up costs) is approximately $500,000 per year for the next three years with a 10-million-dollar grant, subject to a future Treasury Board Submission, paid to the Authority to support the debt reserve fund. Finally, the annual funding for the FNSI is budgeted at $5 million per year for the next three years.
Currently, there are over 100 First Nations taxing under the Indian Act. The total annual tax revenues are in excess of $46 million. It is expected that a significant number of these First Nations will transfer to the Act and many more First Nations will be attracted to the Act by the opportunities it presents including access to private capital at attractive interest rates. Studies have indicated that the bond financing regime could raise $125 million over the first five bond issues.
First Nations Tax Commission Review Procedures Regulations, First Nations Local Revenue Law Review Regulations, First Nations Assessment Appeal Regulations, First Nations Assessment Inspection Regulations, First Nations Taxation Enforcement Regulations and First Nations Rates and Expenditure Laws Timing Regulations
In 1988, amendments to the Indian Act clarified property tax jurisdiction by First Nations in respect of real property rights on their reserve lands, including newly-defined designated lands. ITAB was established in 1989 by the Minister to provide advice on the approval of real property taxation by-laws, and to promote and safeguard First Nation property taxation powers under section 83 of the Indian Act.
ITAB evolved into the FNTC in July/August 2007. The FNTC both assumes the new responsibilities under the Act and will carry on the advisory function of the ITAB in respect of section 83 of the Indian Act. The FNTC builds on the success of ITAB.
Specifically, the FNTC was created to
• ensure the integrity of the system of First Nations real property taxation and promote a common approach to First Nations real property taxation nationwide, having regard to variations in provincial real property taxation systems;
• ensure that the real property taxation systems of First Nations reconcile the interests of taxpayers with the responsibilities of chiefs and councils to govern the affairs of First Nations;
• prevent, or provide for the timely resolution of, disputes in relation to the application of local revenue laws;
• assist First Nations in the exercise of their jurisdiction over real property taxation on reserve lands and build capacity in First Nations to administer their taxation systems;
• develop training programs for First Nation real property tax administrators;
• assist First Nations to achieve sustainable economic development through the generation of stable local revenues;
• promote a transparent First Nations real property taxation regime that provides certainty to taxpayers;
• promote understanding of the real property taxation systems of First Nations; and
• provide advice to the Minister regarding future development of the framework within which local revenue laws are made.
First Nations Tax Commission Review Procedures Regulations
The First Nation Tax Commission Review Procedures Regulations, made pursuant to paragraph 36(1)(b) of the Act, provide the FNTC with the ability to use panels of one or more commissioners to resolve complaints under section 33 of the Act in respect of First Nation local revenue laws. This will assist the FNTC to make the most effective and efficient use of the time of its commissioners in providing a highly responsive level of service.
These Regulations also establish procedures which will be followed if there is a complaint that a First Nation has not complied with the requirements of the Act or Regulations, or that a law created under the Act has been unfairly or improperly applied.
The Regulations outline how a complaint is filed with the FNTC. As a precondition to a review of a complaint by the FNTC, the complainant has to first attempt to resolve the matter directly with the First Nation. Evidence that this first step has been taken is required.
The FNTC has the power to hold hearings. The Regulations set out how such hearings will be conducted, who may be represented, and procedural matters including the subpoenaing of witnesses and documents.
First Nations Local Revenue Law Review Regulations
The First Nations Local Revenue Law Review Regulations, made pursuant to paragraph 36(1)(b) of the Act, provide the FNTC with the ability to use panels of one or more commissioners to review and approve First Nation local revenue laws under section 31 of the Act.
First Nations Assessment Appeal Regulations
The First Nations Assessment Appeal Regulations, made pursuant to paragraph 36(1)(a) of the Act, set out the requirements for establishing and implementing appeal procedures in respect of the assessment of property interests in the reserve.
The Regulations ensure that the means of appealing the assessment of real property
• are equitable, comprehensive, open and able to withstand public scrutiny;
• are applied uniformly by First Nation property tax authorities;
• are consistent with the requirements reflected in other jurisdictions; and
• are consistent with the principles of natural justice.
The scope of the Regulations encompasses the following areas:
• levels of appeal;
• the make-up of a First Nation assessment review board;
• assessment review board powers and functions;
• complainant and First Nation rights and obligations; and
• conflicts of interest.
First Nations Assessment Inspection Regulations
The First Nations Assessment Inspection Regulations, made pursuant to paragraph 36(1)(a) of the Act, are required to provide for the inspection of taxable properties.
The Regulations establish procedures for inspections, including such matters as notice, timing, and, in the event the assessor is denied the required access to the property, the ability to make the assessment based on the information otherwise available.
First Nations Taxation Enforcement Regulations
The First Nations Taxation Enforcement Regulations, made pursuant to paragraph 36(1)(a) of the Act, establish the conditions that a First Nation would meet and procedures that a First Nation would use in dealing with taxpayers on reserve who fail to pay taxes when taxes are due under a First Nation property tax law.
The remedial procedures outlined in the Regulations are on a continuum, starting with a demand for payment, and then, if the taxes remain delinquent, progressively move through the creation of a lien and ultimately, a sale of property. There are adequate time periods between each step, with sufficient notice to the delinquent taxpayer. Due process is required. If the taxes remain unpaid, the First Nation tax authority may enforce payment through the seizure and sale of the taxpayer's interest in the property and/or the seizure and sale of the personal property of the taxpayer located on the reserve. Discontinuance of services is also an option for a tax authority under certain conditions.
First Nations Rates and Expenditure Laws Timing Regulations
The First Nations Rates and Expenditure Laws Timing Regulations, made pursuant to paragraph 36(1)(a) of the Act, set out the required date for the making of First Nation tax rate and expenditure laws. These annual rate and expenditure laws establish the rate of tax to be applied to the assessed value of the property interests and establish budgets for the provision of those local services supported by the tax revenues received.
The Regulations ensure timely action by First Nation tax authorities and inform taxpayers and other stakeholder interests of the timing for the establishment of tax rates and tax revenue expenditure budgets.
The Regulations require a First Nation property tax authority to
• set the rate of tax to be applied to the assessed value of each class of property 14 days after similar rates are established by a comparative tax authority, subject to provincial jurisdiction, that is adjacent to the taxing First Nation; and
• establish a budget for the expenditure of local revenues on the same date as the tax authority is required to establish the rates of tax.
The development of the Act offers no available alternative other than to make the supporting regulations. These regulations are a necessary component to the successful and effective implementation and operation of the FNTC and the First Nation property tax regimes established under the Act. The First Nations Tax Commission Review Procedures Regulations and the First Nations Local Revenue Law Review Regulations will be limited in their application to the work undertaken by the FNTC pursuant to the Act. The First Nations Assessment Appeal Regulations, First Nations Assessment Inspection Regulations, First Nations Taxation Enforcement Regulations and First Nations Rates and Expenditure Laws Timing Regulations will apply only to those First Nations that opt to exercise their property tax jurisdiction under the Act.
Benefits and costs
These regulations do not require any additional funding, as the costs associated with these regulations are included in government funding for the operation of the FNTC. This funding is secured under the Act implementation plan and is part of the Department's existing financial resources. The average annual funding for the FNTC is $5 million.
The regulations are seen by proponents and stakeholder interests supporting First Nation tax practices as being consistent with established property tax practices and thereby provide the level of predictability and certainty required to maintain the credibility of the First Nation property tax system. The regulations would ensure that First Nation governments can be free to implement their property tax jurisdiction while the interests of tax payers are protected.
The efficient and equitable operation of property taxation regimes and the resulting transparency and certainly attract more business and residential interests to locate on reserve and generate a greater level of investment in the local economy. A better property tax system, attracting investment, will result in a commensurate increase in the value of on-reserve real property, the timely development of further on-reserve infrastructure through improved access to capital markets and viable long-term debt financing and improved First Nation economic development opportunities.
The following benefits will accrue:
Regulations governing the essential components of a sound and fair property tax system would benefit First Nations by
The regulations provide assurance to taxpayers about the stability of tax rates, the provision of local services, and the soundness of administrative practices on reserve. The regulatory framework related to appeals of property assessments further ensures that taxpayers are treated fairly and are not disadvantaged because of being located on reserve. The regulations would also govern the procedures where taxpayers could air their issues through a review process when issues arise.
Consistent with the External Advisory Committee on Smart Regulation (EACSR), the First Nations property tax system, supported by federal legislation and regulations, would greatly contribute to the government's policy goals for self-government, a new fiscal relationship, improved accountability, and economic development for First Nation communities.
In this context, the Regulations would
The establishment of the FNTC, supported by the necessary regulations enhances Canada's social and economic union by promoting harmony among First Nation tax systems and between First Nations and adjacent jurisdictions.
Provincial and local governments would benefit through the delivery of regulatory harmony across Canada. Property tax harmony would ensure that initiatives to improve internal trade and maintain a level playing field are supported by self-government initiatives. The regulations would also help First Nation and local government tax jurisdictions to better interact.
The Act contains a number of safeguards to ensure accountability for revenues generated from property taxation. First, in accordance with section 13 of the Act, these revenues, which are maintained in a separate account, can only be expended through the authority of an expenditure law made under the Act which, in accordance with section 10 of the Act, must be made annually. Section 13 also provides that such an expenditure law cannot authorize expenditures that exceed the local revenues estimated for the year, over and above any deficit carried over from prior years. Finally, under section 14, the local revenue account will be audited at least once each calendar year, and reported separately from other accounts. The audit is made available to all taxpayers, First Nation members, the FNTC, the FMB, the FNFA and the Minister.
The First Nations Tax Commission Review Procedures Regulations, the First Nations Assessment Appeal Regulations, the First Nations Assessment Inspection Regulations, the First Nations Taxation Enforcement Regulations and the First Nations Rates and Expenditure Laws Timing Regulations were developed jointly with ITAB. Significant discussions were held with the FNFA and the Advisory Panel for the FMB.
Broader consultations, on these regulations, took place with the general public and selected focus groups as part of the initiative-wide consultation sessions that were held in Moncton, Westbank, Richmond and Calgary. Specific questions raised by the participants were general in nature and sought clarification on the how the FNTC would work and how the regulations would apply to property tax regimes already established under section 83 of the Indian Act should those First Nations decide to operate those regimes under the Act. As a result of the comments received and to accommodate the varying approaches to property taxation among First Nations, some changes to certain regulations were made.
More specifically, the request for reassessment provisions of the First Nations Assessment Appeal Regulations were made more flexible to ensure that First Nations with existing property regimes could follow the provincial models they had already adopted. For clarity, the First Nations Tax Commission Procedures Regulations were split into two sets of regulations. With this change, the First Nations Tax Commissioner Procedures Regulations now deal solely with the review of complaints under section 33 of the Act. The new First Nations Local Revenue Law Review Regulations deal with the review and approval of laws under section 31 of the Act.
In addition, as a result of the comments received, further changes are anticipated to the First Nations Taxation Enforcement Regulations. Specifically, some First Nations expressed the desire to have greater clarity with respect to First Nation priority in the distribution of the proceeds from the sale of property in tax default situations. It is anticipated that, over time, further clarification would be made by amendments to the Act or the regulations or both.
Compliance and enforcement
The FNTC, through the Act, is mandated to examine and approve property tax laws drafted by First Nations. The FNTC, in its review and assessment of these laws, will ensure that they conform with the Act and regulations.
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Local Revenue Management Implementation Regulations
The FMB provides services to First Nations in areas relating to financial management, accountability, economic development and capacity building. To become a borrowing member of the FNFA, a First Nation must have a financial administration law in force that meets the FMB's review standards for such laws. In addition, the FMB must certify that the financial management system of the First Nation conforms to the FMB's financial management operational standards that apply to borrowing members, before a First Nation can borrow for capital infrastructure from the FNFA.
Another important role of the FMB is to intervene in the management of a First Nation's local revenues if a borrowing member of the FNFA defaults in an obligation to the FNFA and the FNFA requests FMB intervention, or if a First Nation fails to remedy a situation on completion of an FNTC review under section 33 of the Act and the FNTC requires FMB intervention. The FMB can initiate intervention on its own, if it is of the opinion that there is a serious risk that a borrowing member will default on an obligation to the FNFA.
The Local Revenue Management Implementation Regulations, made pursuant to paragraphs 56(a) and (b) of the Act, deal with the implementation of co-management and third-party management of a First Nation's local revenues, and the charging of fees by FMB for these services. The FMB's authority to implement these forms of intervention are found in section 52 of the Act for co-management and section 53 for third-party management.
The FMB's ability to enter into either a co-management arrangement or third-party management is necessary to maintain the integrity of both a First Nation's local revenue laws and a First Nation's tax regime as a whole, as well as to ensure the credit worthiness of FNFA securities.
The Regulations establish procedures respecting remedial intervention and detail certain responsibilities of the First Nation and the FMB before and during remedial intervention, including:
The only alternative considered was the possible incorporation of the model for remedial management established by INAC.
The INAC model applies to the moneys transferred annually by Canada to a First Nation to enable it to provide specified programs and services. These transfers for programs and services are part of contractual arrangements between Canada and First Nations. The contracts also include provisions on the triggering as well as procedures governing third-party management intervention. The associated third-party management plan covers all of a First Nation's expenditures out of the transfer funding.
After detailed analysis it was determined that the INAC model cannot be applied to potential FMB interventions under the Act. The INAC model applies to funds being transferred to the First Nation by Canada or another party under a contract. The local revenues generated under the Act are raised by the First Nation directly through taxation and similar levies under their own local revenue laws. The requisite authorities for FMB intervention must be provided for under the Act and the requisite procedures in the Act and the regulations.
Benefits and costs
These Regulations do not require any additional government funding for the FMB. Funding for the general operation of the FMB is secured under the Act implementation plan and is part of the department's existing financial resources. The average annual funding for the FMB is $4 million.
The costs specifically associated with co-management or third party management will be charged on a cost-recovery basis to affected First Nations and will represent a direct recovery of such costs as the cost of the management agent engaged by the FMB, any cost associated with the obtaining of required information and documentation and a 10% administrative fee.
The Regulations provide the framework and the process for effective intervention. The certainty and protection of such a regulatory system will increase the integrity of the First Nation property taxation and borrowing regimes established by the Act and yield benefits to all parties, including taxing First Nations, taxpayers, potential investors and other First Nation institutions.
Taxing and borrowing First Nations will benefit from having a clearly defined process for the implementation of co-management and third party management. In addition, the Regulations also protect First Nations from undue intervention. This will serve to encourage greater investment on reserve and provide a stronger basis for a marketable credit rating for securities issued by the FNFA.
Taxpayers on reserve benefit from the clearly defined process for intervention provided by the Regulations. The FMB will act as a secondary component of rate-payer protection in the event of a dispute over the making or application of laws by a First Nation.
Potential investors benefit from the increased level of security for their investments provided by the FMB's intervention powers. For example, investors who choose to purchase bonds from the FNFA will know that the system protects against the possibility of a defaulting member adversely impacting the credit rating and lowering the rate of return.
The Local Revenue Management Implementation Regulations were developed in conjunction with the First Nation Advisory Panel for the FMB. To ensure these regulations meet the needs of the FNTC and FNFA, drafts of the regulations were shared with ITAB and the FNFA.
The Local Revenue Management Implementation Regulations were also discussed at the consultation sessions in Moncton, New Brunswick; Richmond, British Columbia; Kelowna, British Columbia; and Calgary, Alberta.
During the course of these sessions, many of the issues raised related to the Act rather than the regulations. These included questions concerning the source and extent of the FMB's authority to intervene and the "triggers" for intervention: that is to say, what circumstances would lead to FMB intervention. These questions were responded to in terms of the provisions of the Act but did not generate any amendments to the regulations.
The one question that was asked that specifically referenced the Regulations involved the FMB charging fees for co-management and third party management services. Concern was expressed that a First Nation in remedial management may find it difficult to budget for the cost of an intervention on a monthly basis, and it was suggested that it might be more reasonable to accumulate the costs and assess them once a year.
It was clarified that the Regulations actually state that the costs would be assessed "no more than once a month". It was also clarified that the FMB will be developing further policy around the charging of fees and that the question of a First Nation's ability to pay may be a consideration in respect of the timing of the charging of fees. Further, the recovery of fees would be out of the tax base not out of funds transferred from the federal government.
There were no changes made to the Local Revenue Management Implementation Regulations as a result of the consultation sessions.
Compliance and enforcement
The FMB will seek voluntary cooperation by a First Nation that is under co-management or third-party management. Neither the Act nor the Regulations provide for penalties if a First Nation fails to cooperate with FMB or its management agent during intervention. If reasonable cooperation is not forthcoming, the FMB will rely on the management authorities provided under the Act and the procedures provided under the Act and the Regulations. The FMB may, in certain cases, also apply for a court order to compel First Nation compliance with the requirements of the Act, the regulations and First Nation laws made under the Act.
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