The First Nations Tax Commission (FNTC) and proponent First Nations have been working towards cannabis tax jurisdiction over the past year. This has included extensive legal and policy research, discussions and work with many First Nation proponents and advancement of a cannabis tax jurisdiction proposal at the FMA/FNLMA national meeting in May 2018 (350 attendees from over 160 First Nation communities). The FNTC has also advanced the proposal to several departments in the federal government and to the Senate. Some First Nations have also been active in advancing cannabis tax proposals to their provinces and to Canada.
It is important to note this cannabis proposal should be considered as part of a broader agenda to implement First Nation jurisdiction for the many First Nations using the First Nations Fiscal Management Act (FMA) and First Nations Land Management Act (FNLMA) legislative frameworks.
Bill C-45 Progress
- March 2017 – The federal government introduced the Cannabis Act (Bill C-45). First reading of Bill C-45 in the House of Commons was in April 2017.
- September 2017 – The Department of Finance proposed changes to the Excise Act, 2001 to implement the cannabis excise tax – the higher of $1/gram or 10% of the sale price.
- December 2017 – Two-year agreement established between federal government and provinces that federal government would receive 25% of the excise tax revenues (capped at $100 million annually) with provinces receiving 75% plus any additional provincial taxes levied, such as those considered by Alberta and Saskatchewan.
- March 2018 – Second Senate reading of the Bill. After positive vote the Bill was sent to five different Senate committees for review, including the Standing Senate Committee on Aboriginal Peoples.
- Early June 2018 – 11 members of the Senate Committee on Aboriginal Peoples planned to support an amendment deferring Bill C-45, pending a report on government efforts to address the concerns of Indigenous communities. However, Health Minister Ginette Petitpas Taylor and Indigenous Services (ISC) Minister Jane Philpott sent a letter to the Committee promising a full report to Parliament in September and another within 12 months. Highlights of the letter:
- Committed $200 million over five years to enhance the delivery of addictions treatment and prevention services.
- Will work with First Nations on public education materials.
- Establishment of a special navigator service exclusively for Indigenous businesses seeking to become federal licensees under the Cannabis Act.
- Committed to continued engagement and work with Indigenous communities to address and accommodate jurisdictional issues.
- Committed to working with the First Nations Tax Commission on revenue sharing and taxation arrangements.
- June 7, 2018 – Result of the third senate vote on Bill C-45 was 56 / 30 in favour of legalization. The Bill was moved back to the House of Commons for deliberations on almost 50 proposed Senate amendments, including some more noteworthy ones such as:
- Allowing provinces to prohibit home cultivation of cannabis if they choose;
- More stringent restrictions on advertising on promotional clothing and items; and
- Penalties on young adults sharing cannabis with minors.
- Current Status – On June 18, the House made their decision on the Bill’s amendments, but because they did not agree to the amended Bill C-45 in its entirety, the Bill was sent back to the Senate after the House voted 205-82 to pass the amended Bill C-45. The House of Commons agreed to most of the amendments (27 plus 2 others amended), but denied 13 amendments, including providing the provinces and territories the power to ban home-grown cannabis, prohibiting producers from distributing branded merchandise, and setting up a registry for shareholders involved in cannabis companies. On June 19, the Senate voted 52-29 to accept the House’s position and agree to finalize the Bill. On June 20, Prime Minister Trudeau announced that online sales will begin shortly after Royal Assent and the retail system will begin on October 17, 2018, providing provinces 17 weeks to prepare. On June 21, Bill C-45 received Royal Assent and is now ready to be made into law.
There are four rationales for the FNTC’s proposal on cannabis tax jurisdiction. First, cannabis tax revenues could be part of a more self-sufficient fiscal relationship for interested First Nations. Second, cannabis tax revenues could be used to address the health, education, infrastructure and regulation issues associated with cannabis legalization on First Nation lands. Third, comprehensive First Nation cannabis tax powers would reduce the potential for unregulated and untaxed grey market sales of cannabis on First Nations lands like the situation associated with tobacco. Fourth, recognition and implementation of First Nation cannabis taxation jurisdiction would provide a practical example of reconciling First Nation governments within Canada.
There are five distinct elements to the proposal to develop a First Nation cannabis tax jurisdiction option for interested First Nations, these include amendments to the FMA, Excise Act, 2001 (Bill C-74 Budget Implementation Act), Cannabis Act (Bill C-45), and FNGST Act.
- FMA – Enables First Nation option for cannabis excise tax, FNGST and licensing powers.
- Excise Act, 2001 – Federal government established excise jurisdiction through amendments to Excise Act, 2001 with Bill C-74. Amendment to Excise Act, 2001 enables First Nation cannabis excise tax jurisdiction.
- Cannabis Act – Enables First Nation regulatory powers and coordination with other governments.
- FNGST Act – Enables First Nation collection of GST on cannabis and include FNGST revenues as FMA local revenues.
- FNTC Support – The FNTC will work with interested First Nations to support communications, develop sample laws, provide training and build the necessary administrative capacity to implement cannabis tax jurisdiction.
For detailed information on these amendments and distinct elements of the cannabis proposal please see “Summary of the Legislative Proposal to Create a First Nation Cannabis Tax Jurisdiction Option.”
The FNTC will engage with ISC and the Department of Finance to follow up on the proposals submitted and the letter provided to the Senate related to cannabis tax jurisdiction and a new fiscal relationship. Interested First Nation communities are encouraged to contact the FNTC for more information or to work with the FNTC to express support for the further advancement of First Nation cannabis tax jurisdiction to the provincial and federal governments.
First Nation Cannabis Jurisdiction Proposal in Context
The First Nations Tax Commission (FNTC) and proponent First Nations have recently submitted several legislative amendment proposals about implementing First Nation cannabis regulatory and tax jurisdiction. The FNTC is seeking the implementation of these amendments; however, it is important to recognize these proposals should be considered as part of a broader agenda to implement First Nation jurisdiction for the many First Nations using the First Nations Fiscal Management Act (FMA) and First Nations Land Management Act (FNLMA) legislative frameworks.
The federal government has expressed its commitments to decolonization and transition to a nation-to-nation jurisdictional framework supported by an improved fiscal relationship. This is significant, as it has increased expectations and pressure to deliver. However, the key question is: what is the most effective way to realize these commitments and facilitate a sustainable jurisdictional transition from the Indian Act to First Nation government?
The FMA institutions have been successful at facilitating a sustainable jurisdictional transition for taxation and financial management from the Indian Act to First Nation governments. This FMA success can be attributed to six qualities:
- First Nation led – Proposed changes are First Nation led and the experience, expertise and stability of the First Nation leadership is perhaps the most important contributing factor for success.
- Optionality – Proposed changes need to be optional and respect the right of self-determination to ensure a clear choice and commitment is made by participating First Nations.
- Legislative Framework – Changes must be supported by a legislative framework to facilitate an orderly transition from federal (or provincial) jurisdiction to First Nation jurisdiction.
- Institutional Support – First Nation institutions are a bridge to help First Nations assume jurisdiction. They provide standards, sample laws, certification, law review, templates, systems and support. As a result, they ensure there is an efficient and cost-effective transition from the previous Indian Act regulatory framework to the new First Nation regulatory framework. Stated differently, they reduce the switching costs from the old colonial system to the new First Nation one.
- Capacity – First Nation institutions support capacity development so First Nations can implement their jurisdictions in a way that supports better services and infrastructure, grows their economies and helps them generate more revenues to assume more jurisdictions.
- Revenue Generation – Changes that support economic development and generate revenues are more likely to be successful because they are more fiscally sustainable, and they provide a strong incentive to join the optional framework.
The success of the FMA framework and underlying qualities has been recognized through independent review and confirmed by the commitment to expand this framework in the most recent federal budget.
The FMA institutions and Lands Advisory Board hosted a national meeting of FMA and FNLMA First Nations on May 16th and 17th in Vancouver, BC. The purpose of the meeting was to showcase the success of these initiatives, present several new proposals to facilitate more First Nation jurisdictions, and to seize the federal commitment to transition from colonialism to First Nation jurisdiction. The meeting had over 350 registered participants from over 160 FMA and/or FNLMA First Nations. Most attendees commented that it was the best, most forward-looking and optimistic First Nation led meeting they had ever attended. A goal of the conference was to obtain broad based social license to proceed with proposals to expand the FMA / FNLMA frameworks. This goal was certainly achieved based on the comments, applause for the proposals and strong support voiced by participants during and after the conference. An overview of the agenda, presentations, videos and proposals can be found at www.fnleadingtheway.com.
Summary of the proposals advanced and supported by participants:
Grow current First Nation institutions – The FMA/FNLMA institutions have advanced several amendments to create greater certainty and increase the jurisdictional power of First Nations.
First Nations Tax Commission – Expand & clarify existing FMA fiscal powers: property transfer tax, business activity tax, accommodation tax and associated FNTC support through sample laws, standards, admin. support, coordination with other governments as necessary, and training.
First Nations Financial Management Board (FMB) – Improve federal transfer mechanism (10-year grants) without offsets to facilitate transition to a revenue based fiscal relationship supported by FMB certification.
First Nations Finance Authority (FNFA) – Enable First Nations to monetize their transfers in combination with other First Nation independent revenues to support FNFA debentures.
Lands Advisory Board – Expand and clarify FNLMA powers relating to Land Code voting threshold, First Nation enforcement powers, transfer of Indian monies upon successful Land Code vote, streamlined ATRs, land management jurisdiction and law making, and environmental assessments.
New Tax Jurisdictions – These new tax jurisdictions are part of the development of a revenue based fiscal relationship option for interested FMA First Nations. This includes providing an option for participating First Nations to associate exclusive service responsibilities and jurisdictions with these independent revenues using the FMA framework.
- Cannabis tax – First Nation cannabis tax jurisdiction option that means First Nations would obtain fiscal powers associated with cannabis excise tax and FNGST on cannabis sales. This requires amendments to the Cannabis Act (Bill C-45), FMA, Excise Act, 2001, and FNGST Act to advance a First Nations cannabis tax jurisdiction option.
- Tobacco tax – Option for tobacco tax jurisdiction for interested First Nations in the FMA. First Nations receive fiscal powers associated with tobacco taxes levied on consumers, equivalent to tax levied by the applicable province.
- Aboriginal Resource Tax (ART) – First Nations are advancing the ART to ensure they are adequately compensated for resource projects on their traditional territories. The tax should be developed from tax room currently occupied by other governments; standardized and transparent; not subject to unilateral change; based on world bench mark prices; integrated into an improved fiscal relationship; and, administratively supported by the FNTC.
- Improved First Nations Goods & Services Tax jurisdiction – Includes bringing FNGST in the FMA as local revenues that can be pledged for financing debentures, FNGST legislation recognizing FMA as optional law-making authority for FNGST laws, lifting the three-product moratorium and including cannabis as a fourth product, restructuring revenue sharing elements to support improved fiscal relationship & facilitating more debenture financing, and increased support from FMA institutions.
Increase Institutional Support – Create and expand other important First Nation institutions.
- First Nations Infrastructure Institute (FNII) – Create FNII within the FMA to help build more economically and fiscally sustainable infrastructure for interested First Nations.
- First Nations Statistics – Re-establish a statistics organization focussed on supporting a revenue based fiscal relationship.
- Tulo Centre of Indigenous Economics – Expand capacity development to support a First Nation public service that can implement FMA, FNLMA and other institutionally supported jurisdictions by expanding Tulo to support First Nation public service capacity development.
Summary of the Legislative Proposal to Create a First Nation Cannabis Tax Jurisdiction and Regulation Option
The federal government proposed the draft Cannabis Act (Bill C-45) in March 2017. In September 2017, they proposed a framework for a federal excise tax (to be shared with the provinces) to be implemented by amendments to the Excise Act, 2001. In both cases, First Nations jurisdictions were not considered.
The FNTC has been working with proponent First Nations to advance a First Nation cannabis tax option since March 2017. The FNTC made proposals about this option in April 2017 to the Minister of Justice and in August 2017 to the Department of Finance. Proponent First Nations have been seeking greater support for this option over the last several months.
On February 28, 2018 the Chief Commissioner made a presentation to the Senate Committee on Aboriginal Peoples who were reviewing Bill C-45 the Cannabis Act to suggest specific amendments to enable First Nation regulatory and tax jurisdiction. The proposal was well received by the Senate Committee and has gained positive support from interested First Nations. The FNTC advanced suggested wording for amendments to the Cannabis Act to create First Nation regulatory jurisdiction on March 16, 2018.
On May 8, 2018 the Chief Commissioner made a presentation to the Senate Standing Committee on National Finance regarding Bill C-74 Budget Implementation Act, 2018. Bill C-74 includes the proposed amendments to the Excise Act, 2001 that would create the federal excise tax on cannabis once it is legalized. As follow-up to the presentation, the FNTC provided specific amendments to Bill C-74 that would enable a First Nation excise tax on cannabis under the Excise Act, 2001. On June 6, 2018, in a letter sent from Health Minister Ginette Petitpas Taylor and Indigenous Services Minister Jane Philpott to the Standing Senate Committee on Aboriginal Peoples, the federal government committed to continued engagement and work with Indigenous communities to address and accommodate jurisdictional issues and to work with the FNTC on revenue sharing and taxation arrangements.
Overview of First Nation Cannabis Tax Option
The FNTC and proponent First Nations envision a First Nation cannabis tax and regulatory option that includes:
- First Nation cannabis excise tax jurisdiction and associated revenues.
- First Nation cannabis GST jurisdiction and tax revenues through the FNGST Act and the First Nations Fiscal Management Act (FMA).
- First Nations cannabis licensing regulation and fees.
- Possible First Nation cannabis provincial sales tax revenues through agreements with provinces.
- Harmonized First Nation cannabis regulatory frameworks to effectively implement these taxes.
Objectives of Proposed First Nation Cannabis Tax Option
The FNTC and proponent First Nations are seeking to achieve several broad objectives with their amendment proposals. Achieving these objectives will require amendments to the FMA, Excise Act, 2001, Cannabis Act (Bill C-45) and FNGST Act. In general, these amendments provide a framework to support an improved jurisdiction-based fiscal relationship and recognize and effectively implement First Nations government jurisdictions within the federation.
- First Nations Fiscal Management Act (FMA) Amendments – Provides an efficient and effective option for First Nations to implement fiscal powers associated with cannabis excise tax, FNGST and licensing (and associated fees). The amendments would also enable efficient revenue collection mechanisms (possibly parallel to the FNGST framework under which Canada acts as an agent for the First Nation) and allow interested First Nations to generate revenues to support health, education, infrastructure and regulatory requirements associated with cannabis manufacturing, distribution, sales and consumption on First Nations lands.
- Excise Act, 2001 Amendments – Enables the First Nation cannabis excise tax through FMA law-making and administration agreements between Canada and First Nations. The proposed FNTC amendments for the Excise Act, 2001 were originally proposed for Bill C-74, Budget Implementation Act. Bill C-74 set out amendments to the Excise Act, 2001, Excise Tax Act and other legislation to implement the new federal excise duty framework for cannabis in coordination with the Cannabis Act. In Bill C-74, amendments to the Excise Act, 2001 Schedule 7, the federal government is establishing its duty at 25% of the C$1 per gram or 10 per cent excise duty rate as per their agreement with the provinces. The provinces are able to coordinate the implementation of their portion of the excise tax through a coordination agreement with the federal government. Bill C-74 was passed by the House and the Senate and received Royal Assent on June 21, 2018. Future changes related to the excise framework will be through the Excise Act, 2001, a future Budget Implementation Act or possibly other federal legislation specific to First Nation cannabis excise tax jurisdiction.
- Cannabis Act (Bill C-45) Amendments – Provides First Nation regulatory powers for cannabis tax and ensures regulations are coordinated efficiently and potentially harmonized with other governments. These amendments will provide options for First Nations to create regulatory frameworks on their lands for cannabis parallel those implemented by the provinces. In this regard, it is anticipated that First Nations may choose to tie into and apply certain aspects of provincial frameworks on their lands, for administrative efficiency.
- FNGST Act Amendments – Restores and enhances the option for collecting FNGST on specific products (fuel, alcohol, cannabis and tobacco – FACT tax). It enables a harmonized cannabis FNGST for interested First Nations and allows First Nations to make FNGST laws under the FMA. This includes making FNGST revenues local revenues and providing First Nations an option to associate exclusive service responsibilities and jurisdictions to these independent local revenues using the FMA framework.
Interested First Nation communities are encouraged to contact the FNTC for more information or to work with the FNTC to express support for First Nation cannabis jurisdiction and these proposed amendments to the provincial and federal governments.