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.
Principal Issues: What is the tax implication of payments to a corporation from the BC Ministry for Children & Families for the care of two mentally challenged individuals who reside in the home of the corporation's shareholder?
Position: The payments would be taxable in the hands of the corporation. A salary paid by the corporation for the care of the two individuals could be exempt.
Reasons: The payments are pursuant to a contract between the corporation and the B.C ministry. Paragraph 81(1)(h) of the Act does not apply to a corporation. Providing the salary paid for the care of the two individuals fall within paragraph 81(1)(h) of the Act the salary would be exempt to the extent the salary does not exceed the amount received by the corporation for the care of the individuals.
December 1, 2000
Southern Interior Tax HEADQUARTERS
Services Office Jacques E. Grisé
Pamela Abbot 957-2059
Business Enquiries Senior Officer
2000-005158
Social Assistance Payments
This is in reply to your memorandum of October 12, 2000 concerning payments made by the BC Ministry of Children and Families (the Ministry) for the care of two mentally challenged individuals.
The situation you would like us to consider is where the payments are made to XXXXXXXXXX (the corporation) pursuant to a contract between the Ministry and the corporation for the care of the two individuals. It is our understanding that the two individuals are to be taken care of in the home of XXXXXXXXXX who is the principal shareholder of the corporation. You have indicated that XXXXXXXXXX has not taken salary and wages from the corporation since the corporation is in a loss position.
Paragraph 81(1)(h) of the Income Tax Act provides an exemption from inclusion in computing the income of a taxpayer in respect of certain social assistance payments received by an individual. A social assistance payment will not be included in the income of an individual for income tax purposes, if all of the following conditions are met:
- The payments must be ordinarily made on the basis of a means, needs or income test.
- The payments must be made under a program provided for by federal or provincial law.
- The payments must be received directly or indirectly by the individual for the benefit of another individual (the "cared-for individual").
- The cared-for individual cannot be the individual's spouse or related to the individual or the individual's spouse.
- No family allowance under the Family Allowances Act or any similar allowance provided for by provincial law can be payable in respect of the cared-for individual for the period for which the social assistance payment is made.
- The cared-for individual must live in the individual's principal place of residence, or the individual's principal place of residence must be maintained for use as the cared-for individual's residence during the period for which the payments are made.
Since paragraph 81(1)(h) of the Act only applies to individuals (other than a trust), the amounts received by the corporation pursuant to the contract should be included in the corporation's business income. Since, in the facts you have provided, no payments have been made by the corporation for the care of the individuals, the payments from the contract form part of the corporation's profit or loss pursuant to section 9 of the Act. Had the corporation paid wages for the care of the two individuals in the home of an employee, such wages would likely have been a normal operating expense of the corporation and exempt in the caregiver's hands providing that all the requirements listed above relating to paragraph 81(1)(h) of the Act are met.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Agency's mainframe computer. 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 LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. A copy will be sent to you for delivery to the client.
We hope our comments are helpful.
John Oulton
Manager
Business, Property and Employment
Income Section III
Business and Publications Division
Income Tax Rulings Directorate
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