May 2024 Newsletter

Many people are unclear as to how sales taxes apply on First Nations reserves. Can you buy goods or gas cheaper on a reserve, because GST and HST don’t apply?

The answer is no — at least if the vendor is following the law.

Status Indians are eligible for special benefits under the Indian Act, including that their “property” on a reserve is not subject to tax. (Legally they are still called “Indians” under the Indian Act, even though the term First Nations is now preferred.) Although some status Indians no longer qualify for this exemption due to treaties that their nations have signed with Canada, most still do.

This means that status Indians can in many cases earn income that is not subject to income tax. It also means that they can buy goods that are tax-free when delivered to them on a reserve. For a purchase such as a car or truck, this can save them very substantial amounts of sales tax. (See CRA Technical Information Bulletin B-039 for details.)

However, these rules do not apply to goods that status Indians sell to other persons who are not status Indians. A store on a reserve can sell goods free of GST or HST to status Indians, but not to others. The store must charge and collect the tax. Otherwise the CRA will assess the store for the taxes not collected, plus interest and penalties.

This issue has gone to the Courts several times, and the Courts have consistently ruled that the Indian Act exemption does not protect a status Indian from having to collect sales taxes payable by non-Indians (e.g., the Pictou and Obonsawin decisions of the Federal Court of Appeal).

There is one more twist to these rules. The First Nations Goods and Services Tax Act creates a “First Nations GST”, which First Nations bands can choose to adopt on their reserves. Over 25 First Nations have done this, though some have recently terminated their FNGST. On the reserves where theFNGST applies, it looks just like the regular GST, and is administered by the Canada Revenue Agency just like the regular GST. (The only difference is that the CRA pays the revenues from the FNGST to the band.) So on those reserves, even status Indians have to pay the GST on all their purchases.

Last modified on May 8, 2024 12:00 am
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