FMA TOOLKIT: OVERVIEW & OPT-IN
On the pages of the FMA Toolkit you will find all the necessary information, regulatory legal documents, sample forms and case studies required to participate in the First Nations Fiscal Management Act (FMA), which is a required first step to accessing the powers and benefits accorded to First Nations through the First Nations Tax Commission (FNTC) and low-cost borrowing initiatives through the First Nations Finance Authority (FNFA).
FMA Fiscal Powers: Benefits to participating in the FMA.
The First Nations Fiscal Management Act, enacted in 2005, provides First Nations with access to a comprehensive property taxation framework. The FMA offers fiscal governance tools to increase revenue, improve financial management, and leverage property tax for long-term financing. The comprehensive FMA framework provides confidence to investors by providing expanded powers and creating responsibilities for First Nations, and by creating institutions to support First Nations in the exercise of these powers and responsibilities.
Under the FMA, First Nations are able to make laws regarding:
- Property taxation
- Fees for the provision of services, use of facilities, and for regulatory processes
- The expenditure of local revenues
- Establishing procedures by which the interests of taxpayers may be represented to the Council
- The borrowing of money from the First Nations Finance Authority (FNFA)
- The enforcement of laws in respect to outstanding taxes, charges or fees
- The delegation of law-making powers
First Nation tax authorities levy and collect real property taxes in the same manner as local governments throughout Canada. First Nation real property tax systems base taxation on a property assessment, use market value assessment methods, use professional assessors, and set rates based on a budget. Procedures for assessment appeals and tax enforcement in First Nation tax systems are also similar to local government approaches.
Taxation laws enacted under the FMA must comply with all statutory requirements, any regulations made under the FMA and any standards established by the FNTC.
FMA and Schedule
The FMA came into force on April 1, 2006. The links below go to the full legal document of the FMA and all Regulations of General Application.
STEP 1: HOW TO PARTICIPATE IN THE FMA
First Nations wishing to operate property tax regimes, obtain financial performance and financial management certification, or access a bond financing regime under the FMA, first require to be added to the FMA Schedule*.
All bands (as defined in the Indian Act) are eligible to be added to the FMA schedule of participating First Nations.
Once a First Nation has opted in and is added to the FMA schedule – through a Band Council Resolution – they have access to all of the FMA fiscal powers, and to the wide range of services offered by the fiscal institutions.
If you’ve decided to proceed:
- SAMPLES, STANDARDS & GUIDES:
When a First Nation opts into the FMA, effective communication ensures that members, residents and taxpayers are aware of the system, its economic and service opportunities, and the responsibilities of the First Nation. A fundamental aspect of all tax systems is giving fair and adequate notice to those whose interests are at stake. At every critical step in the First Nation tax system there are notice provisions aimed at different stakeholders. Below are the standards and guidelines related to providing notice.
STEP 2: WORKING WITH THE FIRST NATIONS FISCAL INSTITUTIONS
Once a First Nation has been added to the FMA schedule, they can begin working with any or all of the First Nations institutions established under the FMA:
- First Nations Tax Commission (FNTC) is a shared-governance corporation that regulates and streamlines the approval of property tax and new local revenue laws of participating First Nations, builds administrative capacity through sample laws and accredited training, and reconciles First Nation government and taxpayer interests.
- First Nations Financial Management Board (FMB) is a shared-governance corporation which assists First Nations in strengthening their local financial management regimes and provides independent certification to support borrowing from First Nations Finance Authority and for First Nations economic development.
- First Nations Finance Authority (FNFA) is a non-profit corporation that permits qualifying First Nations to work co-operatively in raising long-term private capital at preferred rates through the issuance of bonds, and also provides investment services to First Nations.
The First Nations Institutions work together to improve the ability of First Nations governments to address the social and economic well-being of their communities, while providing the practical tools available to other governments for modern fiscal management.
FIRST NATIONS INSTITUTIONS
NEXT STEPS: AS A PARTICIPATING FIRST NATION
To establish tax jurisdiction on reserve, First Nations first enact a Property Taxation and Property Assessment Law. To maintain their taxation system, they must pass an Annual Tax Rates Law and an Annual Expenditure Law. Most Nations then consider building on that established framework with additional local revenue laws such as a Development Cost Charge Law, a Property Transfer Tax Law, a Business Activity Tax Law, and a Service Fee/Taxes Law.
FAQs: TAXATION UNDER THE FMA
Common questions relating to taxation under the Fiscal Management Act (FMA)
- Agriculture permits and leases
- Oil, gas, timber and resource leases
- Commercial leases
- Residential leases
- Crown corporations have tax immunity but payments in lieu of tax may be arranged
By enacting a property taxation law or by-law, a First Nation establishes jurisdiction over the territory to which the law or by-law applies — the property within the reserve boundaries. Some provincial and municipal governments tax non-member occupiers and businesses located on reserve. In exercising its property tax jurisdiction in these provinces, the First Nation serves notice that it is occupying the field and those provinces that are taxing on reserve lands will vacate accordingly.
Real property taxation provides First Nation communities an independent, stable and flexible source of revenue, which can be reinvested to improve services, respond to priorities, and address deficiencies in economic infrastructure. Improved community infrastructure and the provision of dependable services also attract commercial and residential development.
- Establishment of a Regulatory Framework to Support Economic Growth
Property taxation is a fundamental pillar of financing government and future economic growth. In this regard, First Nations may choose to establish property taxation in anticipation of future growth or to better manage their current economic activity. Having the regulatory framework in place assists with community planning and allows potential investors to know what the rules are before they invest.
In order to access the FMA, the Chief and Council of an interested First Nation must send a Band Council Resolution (BCR), to the attention of the Minister of Crown-Indigenous Relations, requesting to be added to the Schedule. The resolution (see FNTC Sample BCR) can be mailed to:
Minister of Crown-Indigenous Relations
21st Floor, 10 Wellington Street
Once this request is made, the First Nations Tax Commission will work with the interested First Nation in developing its property tax laws.
First Nations that have Treaties or self-government agreements, and are operating outside the Indian Act, can, if they wish, come under the First Nations Fiscal Management Act ( see section 141 of the FMA). This can be done through the development of regulations which can adapt the provisions of the FMA as required for this purpose.
First Nations that are not Indian Act bands may begin the process by providing a resolution from their governing body to the Minister of Crown-Indigenous Relations.
Minister of Crown-Indigenous Relations
21st Floor, 10 Wellington Street
s. 83 of the Indian Act provides First Nations with by-law making authority for real property taxation on reserve. First Nations exercising taxation under s. 83 must pass the following by-laws: Real Property Taxation By-law, Property Assessment By-law, Expenditure By-law, and an Annual Rates By-law. All by-laws are subject to Ministerial approval.
The FMA provides First Nations with law making authority for real property taxation on First Nation lands. First Nations that wish to exercise real property taxation under the FMA must first request to be added to the FMA schedule. Once added, First Nations can pass local revenue laws for the purposes of taxation, assessment, rate setting, expenditures, and debenture financing. All laws are subject to the review and approval of the First Nations Tax Commission.
Taxation under the FMA has added benefits. These include:
- Certainty over tax jurisdiction
- Improved First Nation enforcement and related property tax powers
- Access to other revenue powers including Property Transfer Tax, Development Cost Charges, Business Activity Tax, Provision of Services, and Fees
- Improved certainty to stimulate investor confidence
- Ability to lever property tax revenues to access low cost long term financing through debentures
FMA is federal First Nation-led legislation, which came into force on April 1, 2006. The FMA expands local revenue jurisdiction, provides financial management certification and expertise, and provides access to debenture financing.
As an alternative to s. 83 of the Indian Act, the FMA provides a comprehensive regulatory framework to support First Nation economic growth.
The Tax Administration System (TAS) is a cloud-based application to assist tax administrators working for First Nation governments through the complete annual tax cycle: assessments, budgeting, rate approval, tax notices, collection and enforcement.
TAS addresses the administrative rules and legislative requirements for First Nation taxation.
The FNTC, the Tulo Centre of Indigenous Economics, and Thompson Rivers University have developed an accredited certificate program in First Nation Tax Administration.
The Certificate in First Nation Tax Administration is intended to help First Nations implement these new powers and develop the skill set for First Nation tax administration using the FMA. This certificate assists those wanting to learn more about First Nation tax administration or those working under s. 83 of the Indian Act.
For more information about the Tulo Centre and the training it offers, visit the Tulo Centre website
The First Nations Tax Administrators Association was formed in 1993, and provides a wide-range of support to First Nation Tax Administrators.
Membership is open to employees of any First Nation who are interested or engaged in the development, implementation or administration of a program, or department of taxation or revenue generation on behalf of a First Nation.
In order to transition to the FMA from s. 83, you must first pass a Band Council Resolution (BCR) to be added to the schedule of the FMA.
Once on the schedule, you must develop new property tax and assessment laws to replace existing s. 83 by-laws. Until you develop new laws, your existing s. 83 by-laws remain in force, to the extent they are not inconsistent with the FMA.
As with other jurisdictions collecting property tax, First Nations now have the ability to use their local revenues to access long term debt financing.
Under the Fiscal Management Act (FMA), First Nation governments can participate in the debenture financing system, and borrow money based on the certainty of collecting property tax each year.
To begin borrowing with local revenues under the FMA, First Nations must satisfy several prerequisites. Briefly, First Nations must have:
- Property tax jurisdiction under the FMA
- Financial management system certification from the First Nations Financial Management Board
- FNFA Membership
- Sufficient borrowing room capacity
- An eligible project
First Nations opting to use their property tax revenues to obtain long term capital financing through the provisions of the FMA may do so through a FNTC approved borrowing law made under section 5(1)(d) of the FMA. The FNTC has developed a sample borrowing law, and a sample borrowing agreement law. A key element of the borrowing law is the project plan. The project plan summarizes the capital project, its financing, fiscal impact, and registered professional certification.
Debt servicing will be based on a percentage of annual property tax revenue. The percentage will depend on the composition of the tax base, security of leasing arrangements, expenditure obligations, and other factors.
Provision of Services: Taxes for the provision of services are imposed on a specific area within a First Nation to fund the service or improvement applied to a particular area only.
The taxes are generally applied to parcels of land. This means that the owner of the parcel of land is responsible for paying the services tax. A services tax is allocated as an annual charge that may be levied for a set number of years depending on the law.
Types of local services include:
- Street improvements
- Bridge developments
- Sewer and water-works
- Park acquisitions and improvements
The cost of work undertaken as a provision of services is paid up front by the First Nation then recovered from property owners within the service area using the tax. The tax may be based on a single amount for each unit or the taxable frontage of the parcel. In some instances, owners can pay the amount in one lump sum, and avoid interest charges. Typically, First Nations will contribute a portion of the cost from the local revenue generated through the First Nation’s property tax law.
Property Transfer Taxes: Property transfer tax (PTT) is a tax on real property transferred (typically a lease) paid by the purchaser of real property, and is based on the fair market value of the property being transferred.
The PTT law sets out when and how the tax will be levied, the rate of tax, any exemptions from the tax, and includes provisions respecting the rights of appeal, the application of penalties and interest to unpaid taxes, and enforcement and collection mechanisms available to First Nations. A critical element in the operation of the PTT is First Nation control over land registry, therefore participation in the First Nations Lands Management Act is strongly recommended.
The FNTC has developed standards for PTT laws based on best practices, while allowing for local variation where appropriate and supporting harmonization with provincial jurisdictions where appropriate. First Nations have discretion in setting their rate of PTT; however, their rate cannot exceed the adjacent provincial rate for PTT. If there is no PTT in their adjacent province, First Nations may choose any other province to follow for rates and exemptions.
Development Cost Charges: Development Cost Charges (DCC) are taxes collected from developers of reserve land to pay the capital costs of servicing the development with transportation (roads), water/sewer/storm-water drainage, and providing park and recreation lands and facilities. DCCs must be collected under the authority of a DCC law.