Raising Revenue on Reserve:
First Nations Goods and Services Tax (FNGST)
By Peter Nyhuus and John Gailus
The First Nations Goods and Services Tax (“FNGST”) offers a compelling revenue stream for First Nation governments seeking to raise money for their community improvements and governance operations.
Introduced in 2003, the First Nations Goods and Services Tax Act, S.C. 2003, c.15, s. 67 (the “Act”) allows a First Nation’s governing body to decide to tax goods and services that are consumed within its reserve or settlement lands. FNGST is intended to replace the federal Goods and Services Tax (“GST”) – it applies to the same range of goods and services as GST and is charged at the same rate (5%). The FNGST is administered free of charge by the Canada Revenue Agency (the “CRA”).
When implemented, FNGST is charged to all persons purchasing goods or services on-reserve, regardless of Indian Status. This is a noteworthy feature of FNGST. Normally, individuals with Indian Status enjoy tax exemptions pursuant to section 87 of the Indian Act. By adopting FNGST, the section 87 tax exemption no longer applies to this tax – residents with Indian Status must pay FNGST on purchases made on-reserve. This includes payments on fuel, utility bills, and deliveries of goods to reserve. It is important to note that only the FNGST would be payable. Status individuals remain exempt from the payment of other taxes, such as PST or the federal excise tax on fuel.
This could be seen as a drawback to this taxation option. People don’t necessarily love paying taxes. And for many First Nation individuals, the Indian Act tax exemptions represent a symbol of the unique position of First Nations people within Canada. In some communities, levying a 5% tax on goods and services may not be an easy sell politically.
First Nation governments must weigh the impact of levying tax on its members with the benefits of the extra revenue stream provided by FNGST.
However, it is worth noting that Status residents on-reserve already do pay federal GST every time they purchase a taxable good off-reserve. The Indian Act tax exemption only applies to purchases made on-reserve or delivered to a reserve. When a person with Indian Status who lives on-reserve buys a new dishwasher at an appliance store located off-reserve, they pay GST to Canada, even if the dishwasher will be used exclusively at home on-reserve. Under an FNGST regime, the tax collected at the appliance store on the sale of the dishwasher is added to the coffers of the First Nation rather than the Canadian government.
This is because FNGST, like GST, is a tax on consumption, rather than sales. A consumption tax is intended to be paid where the good or service is consumed, rather than where it is purchased. This means that FNGST is collected by the First Nation on goods consumed on-reserve, even if they are purchased off-reserve.
The mechanics for determining how to attribute GST charged off-reserve to a First Nation as FNGST are somewhat complicated and depend upon the tax agreement reached with Canada during the FNGST implementation process. But generally speaking, the CRA makes an estimation regarding the amount of GST that would be paid by people who live on-reserve on goods and services they consume on-reserve each year. The CRA then remits this estimated amount back to the First Nation in monthly installments. Importantly, this estimation includes goods and services purchased off-reserve yet consumed on-reserve. The focus of the tax formula is on consumption, not the location of the sale.
The formulas used to make this estimation will depend on a First Nation’s situation. Canada is not necessarily prepared to give up all its taxation jurisdiction within a First Nation’s lands. For instance, FNGST revenue may have to be shared with Canada if many non-Status persons live on reserve, comprising a substantial portion of the First Nation’s tax base, or if there is a great deal of commercial or retail activities on-reserve.
The Government of Canada has created a streamlined process for implementing FNGST. The process begins by passing a Band Council Resolution informing Canada that the First Nation would like to be added to Schedule 1 of the Act. Once the Governor in Council amends the Act to include the Band, the First Nation is eligible to negotiate a Tax Administration Agreement with the Department of Finance and can pass taxation and expenditure by-laws.
FNGST has the potential to bring in considerable revenues to First Nation communities, which can be controlled, managed, and expended as the First Nation government sees fit. Implementing FNGST can be an important act of self-governance and can serve to financially empower a First Nation.
Our lawyers have experience helping Indigenous communities with implementing FNGST. Please contact us today if you are interested in pursuing or learning more about this economic opportunity.