Provincial tax changes for first nations businesses

Report
PROVINCIAL TAX
CHANGES FOR
FIRST NATION
BUSINESSES
Katherine MacNeill, CPA, CMA
CFO for OIBDC
www.oibdc.ca
ASSUMPTIONS IN FOLLOWING PRESENTATION
First Nations tax
exemptions relate to the
delivery of goods or
services to a Band on
reserve lands under
Section 87 (1) of The
Indian Act


Previous PST
policy/rulings
considered a limited
partner to be the
“purchaser” of goods
and services
The Band as 99.99%
limited partner was
purchasing the goods
or services and was
therefore tax exempt
RECOMMENDED
FIRST NATION LP STRUCTURE
WHAT CHANGES?



Issue is tax exemptions for limited partnerships
operating Band owned businesses after April 1,
2013 when the Province brought back PST.
July, 2013 Province released Bulletin 314 on
Exemptions for First Nations, but not addressing
Band owned limited partnerships
Dec, 2013 Province released Bulletin 319 on
Partnerships involving First Nations –and
limited partnership are no longer tax exempt for
PST, fuel and carbon taxes
OIB’S HISTORY




Limited partnerships recommended and
implemented in 2005 and onward for Band owned
businesses
April, 2013 with return of PST, vendors
questioned tax exemption of OIB limited
partnerships
OIB requested, through White Kennedy LLP,
clarification from the Ministry/Province
June, 2013 email received from Ministry
confirming no change to tax exemptions from
period prior to HST
EXCERPT FROM MINISTRY EMAIL JUNE 4/13
As an example, an Indian Band in British Columbia may propose to carry on a commercial
enterprise on reserve and structure the enterprise as a limited partnership under the
Partnership Act to achieve some level of limited liability from commercial risks associated with
the enterprise. The limited partnership may consist of the Indian Band as the sole limited
partner, with a 99 percent interest in the partnership, and a band-owned corporation as the
general partner with a 1 percent interest in the partnership.
In this case, tangible personal property purchased on reserve by the limited partnership would
be 99 percent exempt from social service tax. Please note that this is based on the assumption
that the partners' interest in the tangible personal property is in proportion to their interest in
the partnership. Please also note that the purchase must meet all other criteria for the
exemption under the Indian Act (Canada).
PER MINISTRY EMAIL: “PST HAS BEEN
IMPLEMENTED SUBSTANTIALLY AS IT WAS
PRIOR TO HARMONIZATION, INCLUDING THE
PERMANENT EXEMPTIONS.”


Recent court cases, Edenvale, approximately
March, 2013 in BC and Tron Power
approximately June, 2013 in Saskatchewan –
deemed the corporate partner to be the
purchaser… & corporations or companies are
not tax exempt…
Rumours that the Ministry was reconsidering
its position and that the PST exemption for
First Nation limited partnership was about to
be challenged…
IF A CHALLENGE WAS COMING, HOW
COULD OIB PREPARE?

We researched our options, asking for expert tax
advice:
Peter MacIntosh, CA –Partner, White Kennedy LLP
 Peter Ranson, CA –Partner, KPMG
 Terry Barnett, Thorsteinssons LLP

-COLLAPSE BACK TO THE BAND WITH DIVISIONS
INSTEAD OF LIMITED PARTNERSHIPS?
-CONVERT LIMITED PARTNERSHIPS TO LIMITED
LIABILITY PARTNERHSHIPS?
-OIB AS PURCHASING AGENT FOR LP?
JULY, 2013 PST BULLETIN 314

Exemptions for First Nations

No mention of First Nation limited partnerships


Unclear how the Province intended to proceed
but rumours continued to build that the Ministry
would be challenging the First Nation LP’s
traditional exemption status
In the absence of clear change, OIB maintained a
watch – wait and see position…How can anyone
respond without knowing what is changing?
DEC 18/13 PST BULLETIN 319
& WHAT A CHRISTMAS PRESENT!


Partnerships - pg 5 Limited Partnership –
”Unless a limited partnership agreement
provides otherwise in writing,”
“any transaction involving the limited partnership is
considered to be a transaction with the general
partner”
 “the general partner(s) is considered to own the
partnership’s assets”
 OIB’s general partner was the corporation with
0.01% ownership and no eligibility for tax exemptions

WITHOUT NOTICE, THE PROVINCE REINTERPRETED YEARS OF POLICIES & RULINGS
Previously, the interests of the partners were
carried over to the partnership, so OIB as 99.99%
owner with an interest in the limited partnership
provided its pro-rata 99.99% tax exemptions
interests.
 Pg 6 General partnerships and LLPs


General partnerships and limited liability
partnerships “with a First Nation partner(s) who is
eligible to make exempt purchases on First Nations
land are entitled to an exemption… proportional to
the First Nation partner’s interest in the
partnership…”
OPTIONS
Collapse LPs to Band
Different fiscal yearends, therefore
complicated and
expensive meaning
loss of comparison
periods
 Liability issues since
LPs were set up to
protect Band assets

OIB as Purchasing Agent
No clear precedents or
rulings to support this
process which was the
basis of the previous
edibility for LPs
 Uncertainty versus
the clear eligibility for
LLPs

CONVERT LPS TO LLPS




Fastest response to reduce exposure to additional
costs of PST, fuel and carbon tax liabilities
between date of Bulletin 319 and conversion
Modification to type of partnership, not affecting
overall liability to lenders, vendors or customers
Clear purchasing agency agreement in writing in
each of 10 modification of partnership agreement
Less expensive option with the highest degree of
certainty
FUEL AND CARBON TAX REFUND AUDIT
Dec/13 during our restructure planning, a local
vendor informed OIB that tax exemptions for 4 of
the Band owned LPs was being denied
 Partnership agreements were requested and
claims from October and November denied
 June 4/13 Ministry email, which was being relied
upon at that time, was forwarded and ignored
 Cost to Band over $6,885 for two months

JUN 4/13 MINISTRY EMAIL RESCINDED
JAN 8/14


Exposure to PST, fuel and carbon taxes is from
Jan 8th, 2014, the date the Ministry withdrew its
interpretation in favour of OIB’s LPs until the
LPs were converted to LLPs
Accounting Staff directed to self assess on
invoices covering in that period
CONVERSION REGISTERED JAN 21/14




Announcement to vendors, customers, lenders
issued immediately
New Tax Exemption letter attached to
Announcement
Notice published in Towns of Oliver and Osoyoos
Exposure limited but other First Nations may not
have been as prepared and may incur significant
expenses
EXAMPLE OF ADDITIONAL TAXES
PST
 7% of purchase of
goods and services
delivered to reserve
lands –on $100,000
= $7,000

Fuel and Carbon
Tax
 Rates vary by region

~$.21 to $.32/litre on
clear gasoline
 ~$.22 to $$.33/litre on
clear diesel
 ~$.07-$.10/litre on
other motor fuels

CONCLUSION

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