First Nations Tax Commission – Commission de la fiscalité des premières nations
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13th Nov 2014 | by: FNTC

The First Nation/Resource Project Dilemma

Forecasters are projecting as much as $650 billion in resource project investment in Canada over the next ten years. Canada needs this investment because provincial governments will otherwise be overwhelmed trying to meet the health care costs implied by an aging population.

First Nations and the Government of Canada can work together to get this investment. Project proponents are examining how they should consult with, and in some cases receive consent from, First Nations before the investment is initiated.

First Nations have expressed that they expect to share the tax revenues these resource development projects generate. Currently, most do not collect these revenues and they know this is why their services and infrastructure are languishing. Some First Nations are sharing provincial resource tax revenues. Some are getting funding and revenues directly from companies. Some are receiving both. There is no clear or consistent approach on how these payments are made and how much revenue is available.

“Resource development is offering many First Nations an unprecedented new tax jurisdiction opportunity. Oil prices are currently falling but other resources remain strong. Forecasters are projecting that as much as $650 billion in resource project investment is coming to Canada over the next ten years. This investment would create an enormous economic footprint that could greatly enrich the country and help us meet the tremendous funding challenge of societal aging.”
– C.T. (Manny) Jules, Chief Commissioner, FNTC

Arrangements that have been made are helping but First Nations want to do better. Royalty sharing with provinces is inadequate. First, many provinces do not want to do it because First Nations are a federal responsibility. Sharing provincial revenues may lead to them picking up the costs of declining federal support for First Nations. The First Nations that are sharing recognize that the amount of revenues they receive is determined by provincial policy decisions, not their own. If a province offers a corporation a royalty holiday, their revenues fall.

Negotiating revenue arrangements with companies is bad for investment. It is time consuming, uncertain and expensive. It delays projects, adds to their costs and makes them less viable.

A First Nation Tax on Resource Development

The First Nations Tax Commission (FNTC) has a mandate to “assist First Nations to achieve sustainable economic development through the generation of stable local revenues.” A better way to provide certainty for investors and a sustainable and predictable long term revenue stream would be to replace both these arrangements with a First Nations tax that could be applied by First Nations to resource development in their territories.

The tax should have three elements.

First, it needs to be consistent throughout our respective territories and then be supported by strong tax laws and administrations. Second, it needs to be pre-specified and transparent. No one should have any doubts about tax rates and application. Nobody should have to invest years in a negotiation the way it happens now. Third, First Nations tax needs to be properly coordinated with other governments. If provinces share tax room, it should be made explicit that there are no federal penalties attached through offsets or programs such as Equalization. More importantly, the federal government should share tax room to provide assurance to both First Nations and provincial governments and to avoid a worsening of the fiscal imbalance.

The First Nations Tax Commission has been helping First Nations accomplish these objectives with property taxes and local revenues since 1988. First Nations communities have generated over $1 billion in tax revenue. We have been successful in working with railways to find a reasonable approach to implementing First Nations railway tax jurisdiction. We are responding to First Nations interest in Alberta from communities who are looking to implement well drilling tax jurisdiction.

Tax revenues collected by First Nations have built gyms, community centers and administrative buildings. They have paved roads, built sidewalks, provided clean water and parks. Tax revenues have been used to build infrastructure to support commercial business parks on reserves.  They have supported self-government agreements and the purchase of additional lands.

The FNTC has been asked by a number of First Nations over the last year to work with them on resource development taxation. A similar proposal to this one has been sent to the Minister of Natural Resources. The FNTC presented its proposal for First Nation resource development taxation in its most recent pre-budget submission to Canada. In our pre-budget submission we stress that if First Nations, other governments, companies and the FNTC can work together to implement a First Nation resource development tax, we can realize at least five benefits.

  1. Confirm First Nation participation in resource development – The benefits from resource development need to be linked to the quality of services and infrastructure on First Nation lands just like it exists everywhere else. This could lead to more First Nation involvement.
  2. Reduce negotiation time needed to create benefit agreements – A First Nation resource project tax could effectively replace the need to negotiate revenue arrangements with provinces and companies. This could facilitate the process of obtaining First Nation support and reduce negotiation times facing First Nations and companies.
  3. Support investment – If negotiations are simplified and the federal government contributes to the implementation of a First Nations tax with a tax credit, it would substantially improve the investment climate all across the country.
  4. Improve federal-provincial relations – Using provincial revenues to accommodate First Nations is going to exacerbate the growing provincial fiscal imbalance resulting from rising health care costs. A federal tax credit to help ameliorate the costs of sharing tax room could reduce this fiscal imbalance.
  5. Administrative efficiency – A First Nation resource project tax would follow principles of good tax policy. They would be pre-specified so investors knew rates and procedures. They would be supported by an institutional and regulatory framework provided by the FNTC.

“By doing this we create a number of benefits. First, our communities would have an independent stream of secure revenue from resource development or transportation projects. This will provide us with the revenues we need to close our infrastructure and service gap with other communities. This would allow us to build the employment and administrative capacity to realize our fair share of benefits from resource projects while managing environmental risks. Most importantly for other stakeholders, this will provide a real First Nation community benefit from resource development and lead to more community support.”
– C.T. (Manny) Jules, Chief Commissioner, FNTC

Resource Development Taxation is an innovative proposal designed to respond to the needs of First Nations, industry and other governments. We encourage First Nations and other stakeholders to learn more about the proposal and how this jurisdiction can be established.

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