Questions and Answers - Westbank First Nation Tax (FNT)

GST/HST Notice 92b

The Budget Implementation Act, 1997 c. 26, S.C. 1997, includes provisions enabling the Westbank First Nation to impose sales taxes on tobacco products.

The purpose of this initiative is to help the Westbank First Nation achieve a greater degree of self-reliance and self-government.

The federal government expressed its willingness to enter into taxation arrangements with interested First Nations in the 1997 budget. This initiative demonstrates the federal government's commitment to put into effect taxation arrangements with First Nations interested in exercising taxation powers.

While they are not self-government agreements, these arrangements are consistent with the federal government's policy approach to the implementation of the inherent right and the negotiation of Aboriginal self-government, as well as shared goal of increasing Aboriginal self-sufficiency.

Part IV of the Budget Implementation Act, 1997, enables the Westbank First Nation to enter into an agreement with the federal government to impose a value-added tax, within the reserve, on all sales of tobacco products to both Indians and non-Indians. In order to facilitate its administration, the rules governing the First Nation Tax are similar to the federal GST/HST on these products.

The legislation also provides that the 7 % Good and Services Tax (GST) ceases to apply to transactions which are subject to the FNT. The Westbank First Nation and the federal government have negotiated an agreement whereby Revenue Canada is responsible for the administration of the new sales tax.

The Notice of Ways and Means Motion tabled on October 27, 1998 proposed technical amendments to the legislation pertaining to the imposition of sales taxes by certain First Nations. The proposed amendments ensure that persons who are small suppliers for the GST can retain this status for purposes of the FNT.

These technical amendments are effective as of June 18, 1998

Q1 What is the Westbank FNT?

A1 The council of the Westbank First Nation adopted a by-law to impose a tax on the sale of tobacco products sold on its reserve. This new tax, called the "Westbank First Nation Tobacco Products Tax (FNT)" is for the use and benefit of the Westbank First Nation.

Q2 When did the Westbank FNT come into effect?

A2 The Westbank FNT came into effect on February 1,1998.

Q3 Which products are subject to the Westbank FNT – Are cigars and pipe tobacco subject to the tax?

A3 The tax applies to "tobacco products", defined as :

(a) every article made by a tobacco manufacturer from raw leaf tobacco, by any process whatever, and includes cigarettes and tobacco sticks and snuff;

(b) the leaves and stems of the tobacco plant if they have been processed further than drying and sorting; and

(c) cigars.

Q4 What is the Westbank FNT rate ?

A4 The Westbank FNT rate is 7 %.

Q5 Who collects the Westbank FNT?

A5 A GST/HST registrant who sells tobacco products on the Westbank First Nation reserve must collect the Westbank FNT (including GST/HST registrant wholesalers who deliver tobacco products on the reserve ). They must account for and remit this tax to Revenue Canada at the same time as they file their GST/HST return. Revenue Canada is responsible for the administration and the collection of this tax on behalf of Westbank First Nation.

Q6 Who pays the Westbank FNT?

A6 Everyone who buys tobacco products on the reserve must pay the Westbank FNT. For other sales made on the reserve, the GST/HST rules continues to apply, e.g., non-Indians continue to pay GST/HST on taxable goods and services and Indians purchasing goods and services on reserve do not need to pay the GST/HST (as explained in the GST Technical Information Bulletin B-039R, GST Administrative Policy - Application of GST to Indians).

Whether Indians or non-Indians buy tobacco products on the reserve, they do not have to pay the 7 % GST on these products but must pay the Westbank FNT.

Q7 Do I need a new registration number to collect and remit the Westbank FNT?

A7 No, you do not need a new registration number. If you are already a GST/HST registrant, you are automatically registered for the Westbank FNT.

Q8 As a GST/HST registrant who collects the Westbank FNT, can I claim input tax credits (ITCs)?

A8. As a registrant, you must charge GST/HST or FNT on your taxable sales and you are eligible to claim ITCs to recover the GST/HST or FNT you pay or owe on your purchase and operating expenses as they relate to your commercial activities. For more information on how to claim ITCs, please refer to the guide General Information for GST/HST Registrants).

Q9 How must the Westbank FNT be reported?

A9 This tax must be reported on the GST/HST Personalized Return for Registrants (the GST 34 return).

The registrant, who sells tobacco products from a location on the reserve, must also complete the GST/HST and the FNT schedule (GST499, First Nation Tobacco Products Tax (FNT) Schedule) for each reporting period. This form must to show the amounts collected or collectible for GST/HST and Westbank FNT separately. The GST/HST return must include the combined amounts for GST/HST and FNT.

Q10 Are the reporting periods different with Westbank FNT?

A10 The reporting periods are the same for the registrant collecting the GST/HST and the Westbank FNT. The reporting period of the schedule (GST499) and the due date are also the same as the GST/HST return.

Q11 I am a GST/HST registrant filing annually with instalment payments. Do I need to change the amount of my instalment payments as of February 1st?

A11 If you already make instalment payments, you do not need to increase your instalments immediately to account for the Westbank FNT. When a new fiscal year starts, you must calculate your instalments in the usual manner. This calculation needs to take into account any Westbank FNT you charged over the past year.

Q12 Do registrants have to change the information on their invoices when they sell tobacco products on the Westbank reserve?

A12 No. The disclosure requirements for the Westbank FNT are the same as the ones for the GST/HST. Basically, registrants indicate on their invoice that the 7 % FNT tax was charged on tobacco products.

Q13 What about the Indian Act? How can the government force Indians to pay tax on purchases they make on the reserve?

A13 The tax exemption provided by section 87 of the Indian Act does not prevent a First Nation from imposing a tax on its own reserve. Moreover, subsection 52(1) of the Budget Implementation Act, 1997 provides that the Band Council may pass such a tax by-law, notwithstanding section 87 of the Indian Act. The Westbank FNT is a tax imposed by the Westbank First Nation through the Band Council enacting a by-law to do so. The federal government is acting on behalf of the Westbank First Nation and with their cooperation in administering this tax. The Indian Act continues to exempt Indians from taxes imposed by non-aboriginal governments. The Budget Implementation Act, 1997, reiterates that section 87 of the Indian Act continues to apply.

Q14 Why has the federal government entered into an agreement with the Westbank First Nation?

A14 In its February 18, 1997 Budget Plan, the government indicated its willingness to implement taxation arrangements with First Nations interested in exercising taxation powers. The Westbank First Nation is the first band to do so. The purpose of this initiative is to help them achieve a greater degree of self-reliance and self-government.

Q15 What power does Revenue Canada have to enforce the collection and reporting of the Westbank FNT?

A15 According to the Budget Implementation Act, 1997, S.C., 1997. c. 26, where an agreement has been signed, Part IX of the Excise Tax Act (ETA) generally applies for purposes of a by-law made by the Westbank First Nation as if tax was being imposed under s. 165 of the ETA. Any proceedings which could be taken under any other Act of Parliament in respect of the tax imposed under subsection 165(1) of the ETA may also be taken in respect of the FNT. In other words, Revenue Canada has all of its usual GST/HST compliance powers.

Q16 What is there to prevent a First Nations person from purchasing tobacco products outside the reserve and having them delivered by the vendor to the reserve. Is such an arrangement subject to the FNT or the GST/HST?

A16 A delivery of tobacco products to the reserve is considered to be a sale on the reserve for the purposes of the Westbank FNT, and is therefore subject to the Westbank FNT if sold and delivered by a GST/HST registrant.

Q17 As a registered vendor on the Westbank reserve, what do I do if a First Nations person refuses to pay the FNT on purchases of tobacco products?

A17 The Westbank FNT is a tax imposed by the Westbank First Nation. As mentioned above, this type of tax is not exempted by the provisions of the Indian Act. Consequently, First Nations people are obliged to pay it and the vendor is required to collect it. Just as for the GST/HST, the supplier is liable for any amounts of Westbank FNT payable that have not been duly collected and remitted. If you sell the tobacco product without charging the Westbank FNT, you are still required to account for it in your return and to remit the amount to Revenue Canada.

Q18 What information was sent to those affected by the Westbank FNT? Was it provided to all registrants, all taxpayers, all Revenue Canada employees, or only to those directly affected by the tax?

A18 All affected GST/HST registrants received the FNT schedule and completion instructions. An information pamphlet was also made available.

Q19 What are the appeal rights of a registrant who is assessed for the Westbank FNT?

A19 In the event that an assessment is disputed, the appeal rights are the same for the Westbank FNT as they are for the GST/HST. A Notice of Objection, stating the facts and reasons for the objection and referring to the Assessment Notice number, can be filed with the Department within 90 days of the date of the Notice of Assessment.