Service Tax Laws & the FMA
The FMA includes a specific First Nation law-making power for the “taxation for the provision of services in respect of reserve lands.” Using this power, first Nations can levy a service tax to pay the costs of providing service – related infrastructure to reserve lands. The First Nation borrows the funds required to build the infrastructure, and then levies the service tax for a fixed number of years in order to repay all or a portion of the borrowing costs.
A broad range of infrastructure can be provided through service tax, including water, sewer, transportation infrastructure and recreation facilities.
The benefits of using a service tax include
- needed infrastructure can be built up front to facilitate development,
- service taxes are in addition to general real property tax revenues,
- service taxes can be used as security for borrowing from the First Nations Finance Authority,
- taxpayers can have confidence that all of the service tax revenues collected are used only for the cost of providing the specific infrastructure.
Planning for Service Tax Laws
Planning for a new service tax law includes the following steps:
- Define the project,
- Estimate the cost,
- Determine the construction schedule,
- Determine cost recovery method and term of tax, and
- Taxpayer engagement.
Service Tax Law Development
The service tax law creates the legal and administrative framework for levying and collecting the service tax. Generally, a First Nation will develop a service tax law for each service tax it will levy.
The FNTC provides a sample service tax law for use and adaptation by First Nations. First Nation service tax laws require a public input process in accordance with the FMA and the FNTC Standards Respecting Notices Relating to Local Revenue Laws, 2018.
Next Steps
If you are interested in considering an FMA service tax for your First Nation, please do not hesitate to reach out to us! You can also find sample laws and standards at https://fntc.ca/fma-toolkit-overview-and-opt-in/