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GST/HST Exempt Sales to First Nations Persons

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When it comes to the payment on taxes for goods sold on-reserve, Canadian First Nations Persons enjoy a special tax status.  Section 87 of the federal Indian Act provides that First Nations persons are not liable to taxation in respect of their personal property on reserve:

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.

This special status is reflected in both federal and provincial taxation measures.

New Federal Tax Collection Policy B-039 – For federal GST/HST purposes, the exemption from taxation for First Nations persons is administered through GST/HST Administrative Policy B-039, entitled Application of GST/HST to Indians (“GST APB-039”).

GST APB-039 was recently amended and reissued in October 2020, and is a timely reminder of the evidentiary requirements that must be met by suppliers making sales to First Nations persons on an exempt basis under section 87 of the Indian Act.   This includes requirements for obtaining identification from the First Nations purchasers (e.g., Status Cards), and ensuring that the goods being purchased are all delivered on Canadian federal Indian Reserves.

While not addressed in GST APB-039, where GST/HST has been “pre-collected” by the Canada Revenue Agency – for example under the special rules for direct sellers (see the Alternate Collections Mechanism for Direct Sellers in ETA s. 178.1 and/or the Network Sellers Mechanism in ETA 178), other rules exist to allow for the reimbursement of the independent contractors making or facilitating the sales transactions are reimbursed for same.

Provincial Point of Sale Exemptions – On the provincial front, may provinces also administer “point of sale” exemptions, which may not require actual delivery on reserve.   For example, Ontario has an additional  “point of sale” exemption for the provincial 8% portion of the GST/HST for qualifying sales made “off reserve”.   Saskatchewan, Manitoba and Quebec also have their own PST/QST administrative rules for exempting sales to Native Canadians.

A Federal / Provincial Re-Think?  While a longstanding historical right of First Nations Persons (stemming from promises made to in treaty negotiations in the 19th Century), the rights of First Nations persons under section 87 of the Indian Act may be currently undergoing a “re-think” by both federal and provincial tax collection administrations, in a number of different areas.

One current area of focus seems to be the application of the provision to sales of tobacco – with both the CRA (federally) and the Ontario Ministry of Finance (provincially) recently challenging a First Nations persons ability to purchase quantities of tobacco on reserve free of GST/HST and/or Ontario provincial tobacco taxes, particularly where those sales are for resale.

Significantly, nothing in  AP B-039 precludes the application of section 87 of the Indian Act  in “resale” situations, and indeed, federal jurisprudence suggests that purchases for resale purposes are covered off by a First Nations person’s Indian Act rights.   Recent federal assessments have been either vacated or settled – although Ontario appears to be carrying on this fight provincially.

Persons being assessed for selling goods to First Nations persons without paying tax, should probably seek legal advice, because those sale would all appear to be free of tax under the Indian Act!

Do you require assistance in this area?  If so, contact us here.

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