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: Whether payments received by caregiver under the Persons with Developmental Disabilities Program are excluded from income under paragraph 81(1)(h) of the ITA.
Position: Yes. The payments are implicitly considered to be made on the basis of a means, needs or income test.
Reasons: All of the requirements of paragraph 81(1)(h) are met.
XXXXXXXXXX
2010-036981
October 13, 2011
Dear XXXXXXXXXX
Re: Caregiver Compensation
This is in response to your letter where you enquired whether payments received by you under XXXXXXXXXX Persons with Developmental Disabilities (PDD) program are exempt under paragraph 81(1)(h) of the Income Tax Act (the "Act"). We understand that you (the "Caregiver") provide home care support for a person with a severe developmental disability ( the "Individual") who resides in your principal place of residence and, you receive compensation through a support agency under the PDD program.
Social assistance payments made on the basis of a means, needs or income test are included in income under paragraph 56(1)(u) of the Act as a source of income. However, paragraph 110(1)(f) of the Act generally provides an offsetting deduction for such payments that are included in the income of a taxpayer under this provision. Such payments are therefore not generally included in taxable income but may affect certain income-tested programs.
Section 81 of the Act lists various amounts that are not included in computing a taxpayer's income. Subject to certain conditions, paragraph 81(1)(h) of the Act excludes from income social assistance payments made to an individual caregiver for the benefit of an adult or child under that person's care. The income tax exemption applies to an amount received by a caregiver when all of the following conditions apply:
(a) The payment is a social assistance payment ordinarily made on the basis of a means, needs, or income test.
(b) The payment is made under a program provided for by a federal or provincial law.
(c) The payment is received directly or indirectly by the caregiver for the benefit of the cared-for individual.
(d) 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.
(e) No family allowance under the Family Allowances 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.
(f) 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.
The CRA considers each one of the means, needs or income test to be a financial test and the Income Tax Technical News No. 31R2 describes each test as follows:
- An "income" test is a test based solely on the income of the applicant.
- A "means" test, which is similar to an income test, also takes into account the assets of the applicant.
- A "needs" test takes into account the income, assets and financial needs of the applicant.
An example of a program with an income test is one where the benefits payable are reduced by a percentage of income of the cared-for individual above a set amount.
Based on the information provided, payments under the PDD program to the Caregiver appear to meet the requirements under paragraph 81(1)(h) of the Act except the means, needs or income test. Funding under the program is based on a physical and developmental assessment and is not based on a financial assessment of needs. However, it is implicit that individuals who receive funding under the PDD program would not pass a means, needs or income test as they are not capable of financially supporting themselves or living independently. Consequently, it is our opinion that the requirement under paragraph 81(1)(h) for the social assistance to be ordinarily based on a means, needs or income test, is satisfied by an implicit test applicable to adults with severe developmental disabilities that began in childhood. Therefore, the PDD funding that is received by the Caregiver to provide the basic needs of the Individual will qualify for the exemption under paragraph 81(1)(h) of the Act.
We trust our comments will be of assistance to you.
Yours truly,
Lita Krantz, CA
Assistant Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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