Qualified Donee – Municipal or Public Body Performing a Function of Government in Canada

March 7, 2013

Attention: Policy, Planning and Legislation Division
Charities Directorate

Qualified donee: Municipal or Public Body Performing a Function of Government in Canada

We are writing in response to your request for our views with respect to a “municipal or public body performing a function of government in Canada” pursuant to paragraph 149(1)(c) of the Income Tax Act (the “Act”). Your request has arisen due to the requirement that, as of January 1, 2012, a municipal or public body performing a function of government in Canada must apply for registration with the Canada Revenue Agency (“CRA”) in order to become or remain a qualified donee in subsection 149.1(1) of the Act.

Specifically, a municipal or public body performing a function of government in Canada that has applied to and is registered by the Minister of Revenue, is a “qualified donee” pursuant to subparagraph (a)(iii) of the definition of “qualified donee” in subsection 149.1(1) of the Act. Sections 118.1 and 110.1 of the Act provide that within specified limits, and if supported by official receipts, individual taxpayers may claim a credit against taxes payable, and corporations may claim a deduction in computing taxable income, respectively, for an eligible amount of a gift made to a “qualified donee”. The qualified donee must be shown on a list maintained and made public by the CRA. The requirement to apply for, be registered, and be maintained on a publicly available list became effective January 1, 2012.

We understand that the Charities Directorate is currently developing a process for a municipal or public body performing a function of government in Canada to apply for registration as a qualified donee and is seeking our assistance in this regard.

Our comments

Municipal or public body performing a function of government in Canada within the meaning of paragraph 149(1)(c) of the Act

Municipal body

The term “municipal body” is not defined in the Act. However, we consider a municipal body to have similar characteristics to a municipality. In this regard, a municipal body is typically considered to be a body established or exercising a power under a municipal act or a similar statute of a province or territory with respect to governing the affairs or purposes of a geographic area and is accountable to those governed by it.

Public body

The term “public body” is also not defined in the Act. A public body is typically a body that acquires both its existence and its authority from a statute enacted by a legislature, and whose functions and transactions are for the benefit of, and affect the whole community of, persons to which its authority extends. Generally, a public body has a governance purpose and is accountable to those governed, regulated or represented by it.

Generally, a public body is:

  1. An Indian band as defined in the Indian Act with procedures to elect Chief and council.

  2. Other Aboriginal governments with election procedures.

  3. A body (whether incorporated or not, the members of which may be elected or appointed) established under or as a result of implementing a statute with specific authorization and duties assigned by the statute to the body to develop, administer or regulate governance functions.

Further, in our view, if a public body is incorporated, the federal government or a provincial or territorial government, or the “public” that the corporation is serving or representing should have some specific control over the actions and operation of the corporation and the corporation should be accountable to either that government or that public.

Performing a function of government in Canada

In addition to being a municipal or public body, an entity must also be performing a “function of government” in Canada in order to qualify for the exemption from tax provided by paragraph 149(1)(c) of the Act. Again, the term “function of government” is not defined in the Act and reference must be made to the ordinary usage of this term.

A government typically taxes its residents and sets laws for the orderly management of the area over which it has jurisdiction. As part of managing the area, the government provides a wide variety of services. It is important to note that any particular service provided by a government is not necessarily equivalent to a “function of government”.

In our view, a function of government generally means an activity or group of activities undertaken to meet a governance role or purpose within a geographic area. Historically, the CRA has required that to be performing a function of government an entity must have the ability and powers to govern, tax, pass bylaws and/or provide municipal- or provincial-type services to its members/citizens.

The CRA has accepted that providing a range of municipal-type services, such as water, sewage removal, the pick-up of garbage and the maintenance of infrastructure such as roads, sewers and public buildings is a function of government. Further, providing a key service traditionally offered by the provinces or territories such as social services, overseeing of the environment, health services, and education is generally considered to constitute performing a function of government. The CRA also accepts that negotiating a treaty with the federal government, or a provincial or territorial government, is a function of government.

Accordingly, performing a function of government may be demonstrated by the following:

Note that any one of these activities or services may not be sufficient for the entity to be considered a municipal or public body performing a function of government; it depends on the scope of the service or activity.

Geographical boundaries

As mentioned, we would expect a municipal or public body performing a function of government in Canada to have a governance role or purpose within a geographic area.

Proposed subsection 149(11) of the Act provides that the geographical boundaries of a municipal or public body performing a function of government to be either:

“…(a) the geographical boundaries that encompass the area in respect of which an Act of Parliament or an agreement given effect by an Act of Parliament recognizes or grants to the body a power to impose taxes; or

(b) if paragraph (a) does not apply, the geographical boundaries within which that body has been authorized by the law of Canada or a province to exercise that function…”

The explanatory notes explain that proposed subsection 149(11) of the Act is added to define, for the purposes of section 149, the geographical boundaries of a municipal or public body performing a function of government in Canada. The explanatory notes state:

“For example, if a particular self-governing First Nation meets the definition of “a public body performing a function of government in Canada,” it is intended that the relevant geographic boundary would delineate the area where the self-government agreement, or the statute enacting self-government powers, provides the First Nation authority to impose direct taxes. As a second example, if a particular Indian Band meets the definition of “a public body performing a function of government in Canada,” it is intended that the geographic boundary of the Indian Band be the band’s reserves as defined in the Indian Act. Similarly, if a particular school board meets the definition of “a municipal or public body performing a function of government in Canada” it is intended that the geographic boundary of the school board be the area of jurisdiction of the board as defined by provincial legislation or regulation.”

Application process

As mentioned, your Directorate is currently developing the process for a municipal or public body performing a function of government in Canada to apply for registration as a qualified donee (the “Applicant”). You have requested assistance with respect to the documentation required of an Applicant for registration as a qualified donee.

In our view, an Applicant must clearly provide support to indicate that it is a municipal or public body performing a function of government in Canada. Presently, as there is no prescribed form to apply for registration, an Applicant should submit a letter to the CRA (Charities Directorate) and include documentation such as the following:

It should be noted that the above information should not be considered an exhaustive list. Additional information may be required as each application is reviewed. In addition, all of the documentation suggested may not be necessary in every situation.

We provide the following two examples for your assistance:

Example: An Indian band that is a public body performing a function of government in Canada

Generally, the CRA has accepted that an Indian band or Indian organization that clearly provides government services and is accountable to either the federal, or a provincial or territorial government, or directly to the band members it represents, is a public body. An Indian band is considered to be performing a function of government if it demonstrates that it performs functions and provides services in a manner generally exhibited by a government.

Along with the general information described above, information and documentation that support an Indian band’s application would be:

Example: Other organization that is a municipal or public body performing a function of government in Canada

Along with the general information described above, information and documentation that support an organization’s application may include:

Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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