24 December 2008 External T.I. 2007-0263591E5 - Application of para. 81(1)(h) to respite income

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.

Principal Issues: Application of paragraph 81(1)(h) to amounts received for respite care services of a short term duration.

Position: The exemption under paragraph 81(1)(h) does not apply to amounts received for respite services of a short term or temporary nature because they are not provided in the cared-for individual's principal place of residence.

Reasons: To qualify for the exemption under paragraph 81(1)(h), the cared-for-individual must receive care in their principal place of residence. Residing with a care giver on a short term basis does not meet the requirements of maintaining a principal place of residence.

XXXXXXXXXX 						2007-026359
								Robert Dubis
December  24, 2008

Dear XXXXXXXXXX :

Subject: Care for adults with developmental disabilities

This is in reply to your letter of July 10, 2007 in which you requested our views in regards to the taxation of payments for various services provided by the XXXXXXXXXX A copy of your letter was forwarded to us by the XXXXXXXXXX Tax Services Office on November 23, 2007 for reply.

We understand that your organization receives funding from the XXXXXXXXXX . Your organization in turn pays caregivers who take the disabled persons into their homes on a full time basis as well as individuals who provide in and out of home respite care.

Written confirmation of the tax implications inherent in particular transactions is given by the Rulings Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, requests for confirmation of the tax consequences associated with the particular transaction should be addressed to the relevant Tax Services Office. This Information Circular and other Canada Revenue Agency ("CRA") publications are available on the internet at www.cra-arc.gc.ca. However, we are prepared to provide the following comments.

Paragraph 81(1)(h) of the Income Tax Act ("ITA") exempts from income certain social assistance payments which would otherwise be taxable pursuant to paragraph 56(1)(u) of the ITA. The exemption applies to an amount received by an individual caregiver when all of the following conditions, detailed in Income Tax Technical News No. 31R2 dated May 16, 2006, are met:

1. The payment is a social assistance payment ordinarily made on the basis of a means, needs or income test.

2. The payment is made under a program provided for by a federal, provincial or territorial law

3. The payment is received directly or indirectly by the caregiver for the benefit of the cared-for individual.

4. The cared-for individual is not the caregiver's spouse or common-law partner or related to the caregiver or the caregiver's spouse or common-law partner.

5. No family allowance under the Family Allowance Act or any similar allowance provided for by provincial or territorial law is payable in respect of the cared-for individual for the period for which the social assistance payment is made.

6. The cared-for individual resides in the caregiver's principal place of residence, or the caregiver's principal place of residence is maintained for use as the cared-for individual's residence, during the period for which the payment is made.

Whether paragraph 81(1)(h) of the ITA is applicable to a particular caregiver/cared-for individual situation is a question of fact that must be examined on a case-by-case basis. However, where a caregiver receives payments for care that are excluded from income by paragraph 81(1)(h) of the ITA, the exclusion may also apply to rent paid to that caregiver by a cared-for individual if the rent comes from social assistance payments received by the cared-for individual.

With respect to respite care, since it is provided on a temporary or short term basis, it is our view that the cared-for individual could not be considered to be residing in the respite care provider's principal place of residence. Similarly, the respite care provider's residence would not be considered to be maintained as the cared-for individual's residence. Therefore, the payments to a respite care provider for temporary or short-term respite care are not exempt pursuant to paragraph 81(1)(h) of the ITA. Depending on the facts of each case, payments received by the respite provider may be either employment income or income from a business.

Please note that our comments are based on specific provisions of the ITA. The role of the CRA is to administer and enforce the ITA as passed by Parliament. In our view, a legislative amendment would be required to exclude payments for respite care from income. Amendments to the ITA are the responsibility of the Department of Finance. You may write to the officials in the Tax Policy Branch at the Department of Finance, L'Esplanade Laurier, 140 O'Connor Street, Ottawa, Ontario, K1A 0G5.

Yours truly,

Louise J. Roy, CGA
for Acting Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch