A Comprehensive Assessment of the Taxation Issues Related to Indigenous Settlement Trusts
In this thesis I examine the taxation issues related to Indigenous Settlement Trusts (“Settlement Trusts”). I argue that Settlement Trusts should be taxed differently than other personal trusts under the Income Tax Act (“Tax Act”). Currently, a Settlement Trust is taxed just as any other trust, as an individual pursuant to s.104(2) of the Tax Act, which means that revenues are taxed at the top personal marginal tax rate. Therefore, Bands rely upon the application of an attribution provision, s.75(2) of the Tax Act, to attribute revenues to the Band. The Band is then tax exempt, pursuant to s.149(1)(c) of the Tax Act, because they are interpreted by the Canada Revenue Agency as public bodies performing a function of government in Canada. However, unnecessary administrative processes and costs for the Band result from having Settlement Trusts taxed in this manner. Additionally, because s.75(2) of the Tax Act is applied here contrary to its legislative intention (to prevent tax avoidance), the application of s.75(2) could trigger the General Anti Avoidance Rule (”GAAR”). This creates legal uncertainty for Bands. I review existing legal principles that could apply to Settlement Trust taxation. I argue that making a tax expenditure available to exempt this revenue could be justified for sound policy reasons such as the long historical Indigenous-Crown relationship and the objective of preserving Indigenous property. I also argue that s.87 of the Indian Act could apply to exempt Settlement Trust revenues from taxation but do not extend far enough as the law is still evolving in this area. Finally, I argue that Settlement Trusts are sui generis in nature, thus the principles of fiduciary law and the honour of the Crown could be applicable here; that is, the Crown may have an obligation to reconsider Settlement Trust tax treatment. However, it is also unclear whether these doctrines could extend far enough to apply to Settlement Trust income taxation. I conclude nonetheless that, all factors considered, the Federal government should amend the Tax Act to exempt Settlement Trust revenues from being taxed under the general trust tax provisions to eliminate or minimize administrative costs and legal uncertainty for Bands. Bands could then claim Settlement Trust revenues directly through s.149(1)(c) (absent s.75(2)) in the same manner that Bands claim all other Band revenues.
DegreeMaster of Laws (LL.M.)
CommitteeLarre, Tamara; Chartrand, Larry; Hoehn, Felix; Bryan , Brad
Copyright DateAugust 2018
Indigenous, Trusts, Taxation