Standards established by the First Nations Tax Commission (FNTC) reflect best practices in property taxation, and are designed to support First Nation economic growth, First Nation jurisdiction, harmonization, and the interests of all stakeholders in the First Nation property tax system.
Under the First Nations Fiscal Management Act (the “Act”), the FNTC reviews and approves laws. Section 35(1)(a) of the Act gives the FNTC the authority to establish standards, not inconsistent with the regulations, respecting the form and content of local revenue laws. The standards established by the FNTC are additional requirements and, together with the Act and its associated regulations, form the regulatory framework governing First Nation taxation under the Act.
As a matter of policy, the FNTC seeks public input prior to introducing or significantly amending its Standards. This input is critical in developing standards that are acceptable and effective for participating First Nations and their taxpayers.
The FNTC is proposing to amend the Standards for First Nation Property Transfer Tax Laws. Property transfer tax laws are laws enacted by First Nations under s. 5(1)(a) of the Act, and impose a tax on interests in real property situated on reserve at the time of transfer of that interest. The person who receives the interest in land (or the transferee) pays the tax at the time the real property (i.e., a leasehold interest) is registered with the First Nation. The amount of tax owed is determined by multiplying a set rate by the fair market value of the real property transferred. Provinces and some Canadian municipalities have similar property transfer taxes under provincial legislation.
The following summarizes the proposed amendments to the Standards for First Nation Property Transfer Tax Laws.
Exempting Wholly Owned First Nation Corporations
Under the current Standards, a First Nation law may exempt from the property transfer tax corporations that are at least majority-owned by the First Nation (under section 6.2), provided the First Nation pays into the local revenue account an amount equivalent to the amount of taxes that would have been collected had the exemption not applied (section 6.4). Under the Standards, a wholly owned First Nation-owned corporation would be treated in the same way as a majority-owned First Nation corporation if the First Nation chose to exempt them under section 6.2. This means that the wholly owned First Nation corporation would be exempt, but the First Nation must pay an amount equivalent to the tax into the local revenue account.
A proposed new exemption, in paragraph 6.2(f), would allow a First Nation to exempt wholly owned First Nation corporations from the property transfer tax, and would not require payment into the local revenue account an amount equivalent to the exempted tax.
Exempting Land Developers on Initial Transfer for Development Purposes
Currently, transfers to developers for development purposes are fully taxable, even though the developer intends to subdivide and develop the property for re-sales. This reflects the practice off reserve in British Columbia.
Under the proposed new exemption category in paragraph 6.3(b) of the Standards, a First Nation can include in its law an exemption for lease (including sublease) transfers made for the purposes of development or redevelopment and sale. In order to qualify for the exemption, the lease transfer would have to be for land that:
- is undeveloped or intended to be redeveloped, and
- will be developed to create at least 5 parcels for resale within a timeframe set out in the law that is not more than 5 years.
This approach facilitates incentives for greater investment, increased development, and therefore greater property transfer tax revenue in the long term.