13 February 1996 External T.I. 9602915 - CAREGIVERS AND EXEMPT 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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

		960291
XXXXXXXXXX			M. Eisner

Attention: XXXXXXXXXX

February 13, 1996

Dear Sirs:

Re: Payments to Providers of Approved Homes for Mentally Disabled Adults

This is in reply to your letter of January 15, 1996 in which you asked us whether or not the subject payments are exempt from income tax.

At the outset, we wish to mention that it is not possible to make comments in respect of other taxpayers in view of the confidentiality provisions of the Income Tax Act (the Act).

In your letter, you have indicated that your agency enters into contracts with Alberta Family Social Services for the purpose of obtaining Personal Support Funding in respect of mentally disabled adults for whom the agency provides training and guidance. In several cases, the agency, pursuant to the contracts, is required to provide residences where the disabled adults will reside. Each contract specifies the amount that will be paid in respect of the residence and the agency uses the funds received from Alberta Family Social Services to pay the caregiver.

You have asked whether the funding paid to the caregiver can be treated as being non-taxable in the caregiver's hands.

On the basis of the information available, it is not possible to determine the tax consequences of the payments. However, we are providing general comments which we hope will assist you in that regard.

The consideration of whether or not the payments are non-taxable involves paragraph 81(1)(h) of the Act. This provision exempts from income certain social assistance payments received by an individual to the extent that such payments

(a) are received directly or indirectly by the individual under a federal or provincial program for the benefit of another person (other than a spouse or a person related to the individual or his or her spouse), and

(b) are made on the basis of a means, needs or income test,

provided that the person being cared for resides in the individual's principal place of residence.

In determining whether or not payments received by a caregiver are non-taxable by virtue of paragraph 81(1)(h) of the Act, an important consideration is whether the caregiver is an employee or an independent contractor.

Where the caregiver is receiving salary or wages from the employer, this Department does not consider that a payment can be regarded as having been directly or indirectly received under a provincial program for the benefit of another person. Rather, the caregiver is receiving remuneration for services rendered to the employer and is free to use such remuneration in whatever manner he or she chooses. In addition, the caregiver is not receiving the employment income on the basis of a needs, means or income test. Accordingly, if payments being received by a caregiver are in the nature of salary or wages, they would represent taxable employment income rather than being exempt under paragraph 81(1)(h) of the Act.

The above comments can be contrasted with the situation where the source of the funds used by an entity to make the payments to a caregiver who is an independent contractor, are funds received by the entity under a federal or provincial program and the funds can be regarded as having been paid to the entity in respect of the cared-for person on a needs, means, or income test. In such circumstances, the payments received by the caregiver would be exempt under paragraph 81(1)(h) of the Act assuming that the other requirements are met. We also note that this would be the case notwithstanding that the payments received by the caregiver include an amount for services rendered by the caregiver.

Should you require further assistance, you should submit the relevant facts and documentation (including a copy of the contract between the caregiver and the agency) to your local tax services office whose responsibilities include the determination of the tax consequences of actual situations.

We trust you will find the foregoing satisfactory.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch