Indigenous and Northern Affairs Committee on May 27th, 2024

[The Clerk of the Committee, Mr. Cédric Taquet]

Honourable members of the committee, I see a quorum.

I must inform members that the clerk of the committee can only receive motions for the election of the chair. The clerk cannot receive other types of motions, entertain points of order or participate in debate.

We can now proceed to the election of the chair. Pursuant to Standing Order 106(2), the chair must be a member of the government party.

I am ready to receive motions for the chair.

Ms. Gainey, you have the floor.

[Anna Gainey, Liberal, Notre-Dame-de-Grâce—Westmount, QC]

Thank you.

I nominate Patrick Weiler for chair.

[The Clerk]

It has been moved by Ms. Gainey that Patrick Weiler be elected chair of the committee.

Are there any further motions? I see none.

(Motion agreed to)

I declare the motion carried and Mr. Weiler duly elected chair of the committee.

[Some hon. members]

Hear, hear!

[The Vice-Chair, Conservative, Jamie Schmale]

Good morning, everyone.

Thank you, Mr. Weiler. Congratulations on your appointment as chair. I look forward to working with you.

I thank Mr. Aldag for his service and for his work on this committee.

Welcome to meeting number 109 of the House of Commons Standing Committee on Indigenous and Northern Affairs. We recognize that we meet on the unceded territory of the Algonquin and Anishinabe peoples.

Pursuant to Standing Order 108(2) and the motion adopted on Wednesday, April 10, 2024, the committee is meeting to commence its study of tax revenues from businesses on first nations territories.

I think you all know the rules regarding audio feedback and the hybrid format, so I just want to go right to our panel because we are a little behind.

There will be, if the committee approves it, a small change. The Canada Border Services Agency, which is currently scheduled to appear in the second panel with the Canada Revenue Agency, have both asked to be moved to the first panel. Do I hear any objections to that change?

That's perfect. We will have finance, justice, border services and the Canada Revenue Agency all in panel number one.

With that, I wish to say good morning to our witnesses and give them a quick second to set up here.

We will start with the Department of Finance first and then go to the Department of Justice, Canada Border Services Agency and CRA for testimony.

I believe that Lesley Taylor is going to be speaking. She is the director general of intergovernmental tax policy for the Department of Finance.

Thank you very much. You have five minutes.

[Lesley Taylor, Director General, Intergovermental Tax Policy, Department of Finance]

Thank you, Mr. Chair and honourable members of the committee.

Good morning, and thank you for having us here.

Thank you for the opportunity to appear today concerning the committee’s study examining tax revenues on first nation lands and how they might be placed under the control of first nations themselves, or better directed to increase resources available to first nations.

In our capacity as officials from the tax policy branch of the Department of Finance, we provide analysis, research and advice to the Minister of Finance on the Government of Canada's tax policy agenda.

In the area of indigenous tax policy, we are responsible for the negotiation and implementation of tax-related arrangements with interested indigenous groups and the day-to-day operations of these arrangements. We'd be happy to discuss the current government policies and priorities related to indigenous tax jurisdiction; however, we are not going to be in a position to speculate about future government policy.

Part of a fair fiscal relationship means supporting indigenous tax jurisdiction in a way that advances self-determination while also generating important revenues for community priorities. The federal government encourages and works with interested indigenous governments to exercise direct tax powers. Taxation by indigenous governments can help strengthen self-reliance while promoting good governance and political accountability between these governments and their citizens. It also makes the tax landscape in Canada more uniform.

Today, we have over 50 sales and personal income tax administration agreements with indigenous governments across Canada, which delivered about $70 million in revenues to those taxing governments in the last fiscal year.

I will speak briefly about a few of the key tax jurisdiction frameworks.

First is the first nations goods and services tax, also known as the FNGST, facilitated under the First Nations Goods and Services Tax Act. The FNGST is a tool that enables indigenous governments to voluntarily impose a broad-based value-added tax on their own lands under their own laws within their reserve or settlement lands. This tax is fully harmonized with the federal GST or, in the case of the harmonized provinces, the federal component of the harmonized sales tax.

Interested groups can choose to implement the tax when it is right for them through negotiated tax administration agreements between the federal government and interested indigenous governments.

Generally, everyone—that is, members of the indigenous community as well as non-members—will pay the FNGST where it applies. The rules of the FNGST are aligned with the GST. The FNGST is administered by the Canada Revenue Agency free of charge. Indigenous governments can use the revenues received through this framework as they see fit.

I'd like to stress that, in this way, the exercise of tax powers can be an important means for indigenous governments to generate their own independent revenues. Indigenous government tax revenues are not federal transfer funds or Indian monies under the Indian Act. Accordingly, indigenous governments have the discretion to apply tax revenues to their own priorities. The FNGST Act also facilitates the imposition of provincial-type direct taxes between willing provinces and territories and indigenous governments.

Second, and building on the principles of the FNGST framework, budget 2024 proposes to provide additional flexibility to indigenous governments seeking to exercise tax jurisdiction on their lands.

Specifically, it is proposed that indigenous governments would be able to enact a value-added sales tax, under their own laws, on only fuel, alcohol, cannabis, tobacco, and/or vaping products, referred to as the “FACT products”, within their reserves or settlement lands.

The proposed FACT sales tax would be analogous to the FNGST, including applying at the same 5% GST rate, but would be limited to fuel, alcohol, cannabis, tobacco and vaping products. For some communities, taxing these goods may be preferable to taxing the broad base of goods under the FNGST.

I'd like to acknowledge that the development of the proposed framework has been the result of extensive engagement with and work by indigenous partners since we began this process in 2022. In the near term, the focus will be on finalizing the relevant legislation to enable the FACT framework as well as to continue working with indigenous communities interested in implementing this new tool.

In addition to these value-added frameworks, the government has several personal income tax arrangements in place with self-governing indigenous groups, and remains open to negotiating more agreements along with facilitating similar arrangements between interested indigenous governments and provincial and territorial governments.

For the most part, the existing tools for indigenous jurisdiction are focused on direct taxation, where revenues raised on the indigenous lands are linked to incidence within those lands—that is, the tax is ultimately borne by the individuals living or consuming on those lands.

In conclusion, the federal government remains committed to negotiating mutually beneficial tax agreements with interested indigenous governments.

These tax arrangements can support self-determination through revenues that indigenous governments can invest in whatever matters most to their communities.

Again, thank you for the invitation to appear here today. I am here with two colleagues, Adam and Jack. We will appreciate any questions or discussion to come.

Thank you.

[The Vice-Chair, Conservative, Jamie Schmale]

Thank you very much, Ms. Taylor.

We go now to the Department of Justice and Mr. Robert Brookfield.

You have five minutes, please.

[Robert Brookfield, Director General and Senior General Counsel, Criminal Law Policy Section, Department of Justice]

Mr. Chair, thank you for the opportunity to be here today to participate in your study. I'm here for the Department of Justice because the Criminal Code anchors federal legislative engagement in gaming by providing the space for provinces and territories to conduct and manage that activity.

Indigenous access to revenue from gaming can be an element of economic reconciliation. While the present legal structure gives flexibility to provinces and territories to determine appropriate models for this issue with indigenous peoples, we recognize that some would prefer a different legal structure. That may form part of your consideration on this issue. I'm not in a position to express a view on any alternatives, but I hope to provide you with information to assist you.

I will provide an overview of how gaming regulation has evolved in Canada over time, as well as a snapshot of the current regulatory framework as it relates to indigenous peoples.

Legislating against gaming under English law dates back to the 14th century. The Parliament of Canada, following those traditions, first adopted general prohibitions against gaming into the Criminal Code in 1892. In 1969, the Criminal Code was amended to allow the federal government, along with provincial governments, to conduct and manage lottery schemes. However, this resulted in a system that created competition and conflict between the federal and provincial lottery systems. To resolve that conflict the federal government entered into an agreement with the four provinces in which the federal government agreed to withdraw from the sale of lottery tickets, and provincial governments agreed to provide yearly payments to the federal government in exchange. The agreement with the provinces, finalized in 1985, is reflected in section 207 of the Criminal Code.

The only aspect of gaming that the federal government continued to exercise regulatory control over is horse racing. Otherwise, provinces and territories were left to create regulatory frameworks for gaming within the broad discretion that the Criminal Code provided.

The existing framework stayed largely the same until 2021, when former Bill C-218 amended the Criminal Code and removed the prohibition against single-event sports betting. As a result, provincial and territorial governments gained the ability to include single-event sports betting in their gaming regimes.

Throughout the federal legislative history of gaming in Canada, indigenous governments were not substantially engaged or consulted, nor were they given any federal legislative authority to conduct or manage gaming on their lands. The Criminal Code vested that authority solely with provincial and territorial governments. Provinces and territories have generally provided some scope for indigenous governments either to be directly involved in gaming or to receive economic benefits from the resulting revenue. The extent of the involvement varies across jurisdictions.

Many provinces have authorized indigenous governments or the entities they control to operate some casinos and other forms of gaming and to retain the profits. Some other provinces have revenue-sharing agreements for gaming revenue. While the ability of indigenous governments to exercise regulatory control over gaming operations varies, the ultimate legal control under the Criminal Code rests with the provinces.

The inability of indigenous governments in the present legislative structure to operate independently is, understandably, a source of dissatisfaction to some.

As the committee is likely aware, Bill S-268 was introduced in the Senate by Senator Scott Tannas in June 2023. The bill proposes to amend the Criminal Code to permit a governing body of a first nation to conduct and manage a lottery scheme on that first nation's reserve, effectively giving it the same jurisdictional powers as the province. The bill is currently at second reading.

Apart from Bill S‑268, there have been calls for reform by various indigenous governments. For example, the Mohawk Council of Kahnawake, which operates the Kahnawake Gaming Commission within its territory, has openly called for reform.

Although, as mentioned, many indigenous governments share in gaming revenue from the provinces, we recognize the benefits that increased participation—and revenue—could provide.

In the United Nations Declaration Act Action Plan, the federal government has committed to advancing discussions on the participation of indigenous peoples across Canada in the gaming industry and its regulation, collaboratively with provincial and territorial partners. While those discussions have not yet led to clear forward paths, we are hopeful we can look to a more collaborative future.

Thank you for your attention. I am now ready to answer your questions.

[The Vice-Chair, Conservative, Jamie Schmale]

Thank you very much for that and for coming in under the time.

We are going to the Canada Border Services Agency and, I believe, Ms. Laflamme, who is the director of trade policy. Is that who's speaking for the CBSA?

All right. The border agency has no opening remarks, so we're going right to the Canada Revenue Agency.

I'm not sure who would like to speak, but please, go ahead.

[Isabelle Brault, Director General, Legislative Policy Directorate, Legislative Policy and Regulatory Affairs Branch, Canada Revenue Agency]

Good morning, Mr. Chair and committee members.

My name is Isabelle Brault and I am the director general of the legislative policy directorate, legislative policy and regulatory affairs branch at the Canada Revenue Agency. Aliou Diarra is with me today.

I want to thank the committee for inviting us to attend your meeting.

To set a helpful context for the discussions today, I would like to briefly describe the role of the Canada Revenue Agency in the administration of the Excise Tax Act, relative to that of other federal organizations.

As you are aware, the Department of Finance is responsible for developing and evaluating federal tax policy and the legislation through which policy becomes law.

As administrator, the Canada Revenue Agency is responsible for the functions which implement these laws, including providing information to the public and stakeholders; establishing processes through which individuals and businesses may meet their tax obligations and receive benefits; and, of course, carrying out our compliance activities to help ensure that everyone respects the law as it was intended by Parliament.

The role of the Canada Revenue Agency is to interpret the Excise Tax Act and related tax legislation as they are worded. I can thus speak about the application of the legislation.

This concludes my opening remarks.

[The Vice-Chair, Conservative, Jamie Schmale]

Thank you very much.

I appreciate the remarks from our witnesses.

We are now going to start the first round of questioning. It begins with the Conservative Party and Martin Shields for six minutes.

[Martin Shields, Conservative, Bow River, AB]

Thank you, Mr. Chair. It's nice to see you in the chair.

Thank you to our witnesses for being here today. I appreciate it.

Are you aware of the First Nations Tax Commission? I assume that's for Ms. Taylor.

[Lesley Taylor]

Yes, absolutely.

[Martin Shields, Conservative, Bow River, AB]

Are you familiar with their proposal for a first nations resource charge?

[Lesley Taylor]

In high-level terms, yes, we have met with them, and we have heard presentations from them about the proposal.

[Martin Shields, Conservative, Bow River, AB]

You're very familiar with how it works now on first nations in the sense of resource sectors, whatever resource. There are fees they can charge for different things for accessing the land. This goes further by wanting to access the revenue stream that comes from those resources.

[Lesley Taylor]

Yes, that's my understanding.

[Martin Shields, Conservative, Bow River, AB]

Do you have any response to that particular proposal?

[Lesley Taylor]

What I'd say is that we're in really early stages. Budget 2024 did indicate the government's openness to continuing to discuss ways that first nations and indigenous groups can benefit from resource development on their lands. That would certainly encompass the main proposal we've heard from the FNTC.

We have a close relationship with the FNTC, and we have met with them. We continue to do so. It's a little premature for me to speak to views on that, but there is an awareness and a continuing engagement with them on that.

[Martin Shields, Conservative, Bow River, AB]

One of the things you mentioned was, in the sense of taxes, they were linked only to a nation's lands. Are you suggesting that if they developed a tax, it would only apply to people who lived on the nation?

[Lesley Taylor]

Typically, if you're talking about a band, they would have reserve lands or other lands. If you're talking about a group post-treaty, they'll have settlement lands, which could extend beyond the traditional reserve lands. Tax, when an indigenous government imposes it, would apply on those lands.

Typically, under the frameworks we have, it applies to both members of the community and non-members. For example, with the FNGST, both indigenous community members and non-members would pay if they were making a purchase of a good or a service on the lands.

[Martin Shields, Conservative, Bow River, AB]

I understand that concept, but when we go to municipal government, for example, you may not live in that municipality but you are taxed in various ways from that municipality. Are you saying that first nations wouldn't have that ability?

[Lesley Taylor]

In terms of the boundaries of their lands, if they've entered into one of these tax arrangements, then they would tax the entirety of the activities within those lands.

If you're talking about members of the community who would be living outside of the boundaries, those are not.... The frameworks at this time do not permit taxation of members living outside of the community.

[Martin Shields, Conservative, Bow River, AB]

Under the structures of our other forms of government, you can be taxed, but you're limiting them.

[Lesley Taylor]

If a member of an indigenous community, for example, moved to a different province and was habitating there, they would be potentially subject to, let's say, provincial or federal taxes. That's right.

Now, there's a little nuance. If they're moving to different reserve lands, then section 87 exemptions may apply. That would depend on the circumstances of the individual.