Under the Income Tax Act  Indian Bands which qualify as public bodies performing a function of government in Canada are exempt from tax. But for years the issue was always how to determine what activities were required to meet the test. This was often the subject of ruling request letters.
In October the CRA released such a letter which may have put the issue to bed once and for all.
It is worthwhile to quote the document in full.
“This is to advise you that we have reviewed our policy with respect to the interpretation of paragraph 149(1)(c) of the Income Tax Act (“Act”) as it relates to Indian bands that are created under the Indian Act.
In 1948, the Act was amended to include a tax exemption for “a municipality or a municipal or public body performing a function of government”. It appears likely that municipalities were considered part of the provincial Crown and were added to the list of tax exempt entities to make it explicit that they are not subject to income tax. There is no definition of “a municipal or public body performing a function of government” in the Act. However, it would seem logical, based on the wording, that it would appear to be an entity that is similar in nature to a municipality and governs people in a particular area.
The federal government, through the Indian Act, specifically creates an Indian band. Under the Indian Act, these bands or First Nations may be able to levy property taxes and create by-laws that affect its members. Consequently, the very nature of an Indian band and its council under the Indian Act is that of a local government, similar in nature to a municipality. This means that their reserve lands, monies, other resources and governance structure are managed by the provisions in the Indian Act. (footnote 1) When a band council makes a by-law under this section, it must be explicitly approved by the Minister of Indigenous and Northern Affairs Canada.
In 2014 the Rulings Directorate instituted a service called Public Body Rulings as a pilot project. During this period Rulings has gathered even more extensive experience with determining whether a band qualifies as a municipal or public body performing a function of government in Canada. As a result, it is our view that all bands created under the Indian Act meet the criteria to be considered municipal or public bodies performing a function of government in Canada for the purpose of paragraph 149(1)(c) of the Act and are therefore exempt from income tax. “(Our emphasis.)
This has implications beyond just the tax exempt status for such bands. A municipality is a “qualified donee” if it is registered by the Minister.  And a municipal or public body performing a function of government in Canada can be a qualified donee under paragraph (a) (iii) if it has applied for registration as a qualified donee and is registered.
But for Indian bands, this ruling eliminates the most difficult of the hurdles which could strand in the way of tax exempt status and having the ability to qualify as a qualified donee. It is welcome indeed.
 Subsection 149 (1)(c)
 Subsection 149.1 (1), definition os “qualified donee, paragraph (a) (ii).
 The list of municipalities which have been registered can be found at http://www.cra-arc.gc.ca/chrts-gvng/qlfd-dns/qd-lstngs/menu-eng.html