Provincial Tax Changes for First Nation Businesses

1. Provincial Tax Changes for First Nation Businesses Katherine MacNeill, CPA, CMA CFO for OIBDC www.oibdc.ca

2. Assumptions in following presentation First Nations tax exemptions relate to the delivery of goods or services to a Band on reserve lands under Section 87 (1) of The Indian Act • Previous PST policy/rulings considered a limited partner to be the “purchaser” of goods and services • The Band as 99.99% limited partner was purchasing the goods or services and was therefore tax exempt

3. Recommended First Nation LP Structure

4. What changes? • Issue is tax exemptions for limited partnerships operating Band owned businesses after April 1, 2013 when the Province brought back PST. • July, 2013 Province released Bulletin 314 on Exemptions for First Nations, but not addressing Band owned limited partnerships • Dec, 2013 Province released Bulletin 319 on Partnerships involving First Nations –and limited partnership are no longer tax exempt for PST, fuel and carbon taxes

5. OIB’s history • Limited partnerships recommended and implemented in 2005 and onward for Band owned businesses • April, 2013 with return of PST, vendors questioned tax exemption of OIB limited partnerships • OIB requested, through White Kennedy LLP, clarification from the Ministry/Province • June, 2013 email received from Ministry confirming no change to tax exemptions from period prior to HST

6. Excerpt from ministry email june 4/13

7. Per Ministry Email: “PST has been implemented substantially as it was prior to harmonization, including the permanent exemptions.” • Recent court cases, Edenvale, approximately March, 2013 in BC and Tron Power approximately June, 2013 in Saskatchewan –deemed the corporate partner to be the purchaser… & corporations or companies are not tax exempt… • Rumours that the Ministry was reconsidering its position and that the PST exemption for First Nation limited partnership was about to be challenged…

8. If a challenge was coming, how could oib prepare? • We researched our options, asking for expert tax advice: • Peter MacIntosh, CA –Partner, White Kennedy LLP • Peter Ranson, CA –Partner, KPMG • Terry Barnett, Thorsteinssons LLP -COLLAPSE BACK TO THE BAND WITH DIVISIONS INSTEAD OF LIMITED PARTNERSHIPS? -CONVERT LIMITED PARTNERSHIPS TO LIMITED LIABILITY PARTNERHSHIPS? -OIB AS PURCHASING AGENT FOR LP?

9. JULY, 2013 PST BULLETIN 314 • Exemptions for First Nations • No mention of First Nation limited partnerships • Unclear how the Province intended to proceed but rumours continued to build that the Ministry would be challenging the First Nation LP’s traditional exemption status • In the absence of clear change, OIB maintained a watch – wait and see position…How can anyone respond without knowing what is changing?

10. Dec 18/13 PST Bulletin 319 & what a Christmas Present! • Partnerships - pg 5 Limited Partnership – • ”Unless a limited partnership agreement provides otherwise in writing,” • “any transaction involving the limited partnership is considered to be a transaction with the general partner” • “the general partner(s) is considered to own the partnership’s assets” • OIB’s general partner was the corporation with 0.01% ownership and no eligibility for tax exemptions

11. Without notice, the Province re-interpreted years of policies & rulings • Previously, the interests of the partners were carried over to the partnership, so OIB as 99.99% owner with an interest in the limited partnership provided its pro-rata 99.99% tax exemptions interests. • Pg 6 General partnerships and LLPs • General partnerships and limited liability partnerships “with a First Nation partner(s) who is eligible to make exempt purchases on First Nations land are entitled to an exemption… proportional to the First Nation partner’s interest in the partnership…”

12. OPTIONS Collapse LPs to Band OIB as Purchasing Agent • Different fiscal year-ends, therefore complicated and expensive meaning loss of comparison periods • Liability issues since LPs were set up to protect Band assets • No clear precedents or rulings to support this process which was the basis of the previous edibility for LPs • Uncertainty versus the clear eligibility for LLPs

13. Convert LPs to LLPs • Fastest response to reduce exposure to additional costs of PST, fuel and carbon tax liabilities between date of Bulletin 319 and conversion • Modification to type of partnership, not affecting overall liability to lenders, vendors or customers • Clear purchasing agency agreement in writing in each of 10 modification of partnership agreement • Less expensive option with the highest degree of certainty

14. Fuel and Carbon Tax Refund Audit • Dec/13 during our restructure planning, a local vendor informed OIB that tax exemptions for 4 of the Band owned LPs was being denied • Partnership agreements were requested and claims from October and November denied • June 4/13 Ministry email, which was being relied upon at that time, was forwarded and ignored • Cost to Band over $6,885 for two months

15. Jun 4/13 Ministry Email Rescinded Jan 8/14 • Exposure to PST, fuel and carbon taxes is from Jan 8th, 2014, the date the Ministry withdrew its interpretation in favour of OIB’s LPs until the LPs were converted to LLPs • Accounting Staff directed to self assess on invoices covering in that period

16. Conversion registered jan 21/14 • Announcement to vendors, customers, lenders issued immediately • New Tax Exemption letter attached to Announcement • Notice published in Towns of Oliver and Osoyoos • Exposure limited but other First Nations may not have been as prepared and may incur significant expenses

17. Example of additional taxes • PST • 7% of purchase of goods and services delivered to reserve lands –on $100,000 = $7,000 • Fuel and Carbon Tax • Rates vary by region • ~$.21 to $.32/litre on clear gasoline • ~$.22 to $$.33/litre on clear diesel • ~$.07-$.10/litre on other motor fuels

18. CONCLUSION