Taxation is an important element of treaty negotiations as it can provide some of the foundation upon which to build future revenue capacity for the First Nation government. The main elements related to tax that are addressed through treaty negotiations are: the tax power of the First Nation government, the tax treatment of members, and the tax treatment of the First Nation government and of the various assets transferred or recognized under the treaty.
The power to tax is a basic feature of governments. Not only does it provide financial resources to governments to allow them to deliver various programs and services, it also serves as a means of increasing the accountability between the taxing government and its taxpayers.
In the context of treaty negotiations, a First Nation government will have the ability to levy direct taxes on its members within its treaty settlement lands. In addition, outside of treaty, Canada and British Columbia are prepared to negotiate how a First Nation tax could also apply to non-members within treaty settlement lands. In either case, the First Nation government's tax powers would not be exclusive, but would operate concurrently with the continuing tax authority of Canada and British Columbia provided in the Canadian Constitution.
Canada has already negotiated such agreements with other First Nations in the country. Under these agreements, Canada has vacated some of its tax room (that is, agreed not to impose a portion of its taxes) in order to allow the First Nation to impose sales or personal income taxes that are fully harmonized with the tax room vacated by Canada. These agreements ensure that the tax burden on taxpayers remains the same both on and off treaty settlement lands. Coordination and harmonization also allow for a First Nation government to implement a tax while avoiding the costs associated with the design, implementation and administration of an independent tax system.
Tax treatment of First Nation members
Under the Indian Act, status Indians are eligible for a tax exemption in respect of property (including income) situated on a reserve. As the relationship between governments and a First Nation is redefined and the Indian Act ceases to apply post-treaty, the tax exemption under the Indian Act will also cease to apply. The tax exemption is phased out over time to allow affected individuals to prepare and adapt to the change in their taxable status.
Real property taxes
First Nation reserves currently exist outside of municipal jurisdiction, even if the reserve is surrounded by one or more municipalities. Once a treaty is signed, the First Nation reserve and land transferred to the First Nation as part of the settlement become treaty settlement lands. All of the treaty settlement lands will be under First Nation jurisdiction, regardless of whether Crown land added to treaty settlement lands was previously under municipal jurisdiction.
Following an agreement between British Columbia and the First Nation, all residents on treaty settlement lands will pay real property taxes to, and receive services from, the First Nation government. As the municipality will no longer be responsible for providing services on lands that are now part of treaty settlement lands, the municipality would no longer collect real property taxes on those lands that were previously within the municipality.
Tax treatment of the First Nation government
The tax treatment of the First Nation government and of its entities will be addressed mainly in a non-treaty agreement called the Tax Treatment Agreement. For example, the agreement will provide an income tax treatment to the First Nation government and its entities equivalent to that of municipalities and "other public bodies performing a function of government in Canada."
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