Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Whether an amount paid to the guardians of a minor child to cover the cost of the child's food, shelter, education, etc... is taxable.
Position: No.
Reasons: The amount paid to the guardians is for the personal care of a minor child; this type of payment is not income from any of the sources provided for in the Act.
April 26, 2002
XXXXXXXXXX HEADQUARTERS
Manager Audit Technical Support Randy Hewlett, B.Comm.
XXXXXXXXXX Tax Services Office 613-957-8973
ATTN: XXXXXXXXXX
2002-013618
Payments to Guardians for the Personal Care of a Minor Child
We are writing in response to your inquiry of November 30, 2001 regarding the above-noted issue. You inquire whether an amount paid to a child's legal guardians, by a minor child or the estate from which the child is the sole beneficiary, is income that is taxable under the Income Tax Act (the Act).
Our understanding of the facts is as follows:
Facts
1. An automobile accident claimed the lives of the parents (the Parents) and XXXXXXXXXX (the Child) on XXXXXXXXXX.
2. There was a provision in the last will and testament of the Parents that awarded guardianship of the Child to XXXXXXXXXX (the Guardians).
3. The last will and testament of the Parents created estates on their deaths, of which the Child became the sole beneficiary.
4. The death of the Parents resulted in a "refund of premiums", as defined under subsection 146(1) of the Act, of their registered retirement savings plan contributions.
5. The "refund of premiums" was placed in an annuity (the Annuity) that yields monthly income of $XXXXXXXXXX , included in the income of the Child pursuant to paragraph 56(1)(d.2) of the Act.
6. The Guardians made an application (the Application) before the XXXXXXXXXX (the Court) for the "care, maintenance and expenses" of the Child in the amount of $XXXXXXXXXX per month.
7. According to the Application, $XXXXXXXXXX per month was necessary for "the personal care" of the Child to cover the cost of "food, shelter, education, etc..."
8. The Court awarded an amount of $XXXXXXXXXX, equivalent to the Annuity, as "fair and reasonable compensation for the services as guardians" of the Child.
The basic rules for income computation are set out in section 3 of the Act. Specifically, section 3 of the Act requires a taxpayer to include in income all amounts from a source that is an office, employment, business and property or any other source (which covers amounts set out in Part I, Division B, Subdivision d). In our view, the payments to the Guardians, as set out in 8 above, are not income from a source that is required to be included in the computation of income under section 3 of the Act, and therefore, is not taxable. We feel that the amounts paid to the Guardians merely represent a recoupment of personal expenses incurred by them on behalf of the Child. This view is supported by the fact that the Court accepted the Guardians' application for support to provide for "the personal care" of the Child. In so doing, we believe that the Court considered that an amount equivalent to the Annuity represented the actual cost of the Child's "food, shelter, education" and other personal expenses.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the CCRA's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
Yours truly,
John Oulton, CA
Manager
Individual and Business Section
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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© Her Majesty the Queen in Right of Canada, 2002
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