23 July 2001 External T.I. 2001-0084005 - TAX. OF PAYMENTS TO ADOPTIVE PARENTS

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:

Whether (1) maintenance and/or (2) direct services payments made to adoptive parents under the Province of British Columbia's Post-Adoption Assistance Program are taxable.

Position:

Based upon information provided, both payments are taxable.

Reasons:

Payments for the benefit of an adopted child would not fit within the requirements of paragraph 81(1)(h) since they are for the benefit of an individual related to the recipient. The payments are taxable pursuant to paragraph 56(1)(u) and a deduction from taxable income under paragraph 110(1)(f) can be claimed.

XXXXXXXXXX 2001-008400

Randy Hewlett, B.Comm.

July 23, 2001

Dear XXXXXXXXXX:

Re: Taxation of Payments Made to Adoptive Parents

We are writing in response to your letter dated May 7, 2001, wherein you requested our opinion on whether (1) maintenance and/or (2) direct service support payments made to adoptive parents under the Province of British Columbia's Post-Adoption Assistance Program (the Program) are taxable. In addition, if such support payments are determined not to be taxable, you ask whether T5007 slips will have to be issued.

Based upon your description, the Program provides financial assistance in the form of maintenance and/or direct services support payments to families who adopt a designated child that has a special service or placement need. The Program is built on the premise that families who adopt these children may require additional financial assistance in meeting the needs of the child.

Funding for the Program is authorized under section 80(a) of the Adoption Act of British Columbia. Sections 26 to 30 of the Adoption Regulation define the three key components of the Program as designation, eligibility and assistance. In order for a child to be designated, he or she must be under 19 years of age and in the care of a Director in the Ministry for Children and Families. In addition, the child must have special service needs because of a physical, mental, emotional or behavioral condition, or have special placement needs because of age, family, emotional or cultural ties.

Eligibility for financial assistance under the Program is defined in section 27 of the Adoption Regulation. Both the maintenance and direct service support payments are based upon the adoptive parent of the designated child demonstrating financial need on the basis of income and net assets. As well, in the case of direct service support payments, there must also be a need for support services by the designated child.

If the designation and eligibility components of the Program are satisfied, a Director in the Ministry for Children and Families can authorize payment of financial assistance to the adoptive parent(s) in the form of maintenance and/or direct services support payments.

Our Comments

Although you have asked for a ruling, the situation presented appears to be an actual fact situation. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.

Because the maintenance payments and direct service payments under the Program are paid to an adoptive parent, who is a relative of the designated child, paragraph 81(1)(h) of the Income Tax Act (the Act) would not apply to exclude the payments from income. Under that provision, the beneficiary of the payments cannot be the recipient's spouse or be related to the recipient or the recipient's spouse. Individuals connected by adoption are related for the purposes of the Act pursuant to paragraph 251(2)(a).

Paragraph 56(1)(u) of the Act provides that social assistance payments made on the basis of a means, needs or income test must be included in the income of the recipient taxpayer. If the recipient taxpayer resides with a spouse with a higher income, however, the spouse must report the payments. As a result, the maintenance and direct services support payments received under the Program must be included in income.

Payments included in income under paragraph 56(1)(u) of the Act are eligible for a deduction in computing taxable income pursuant to paragraph 110(1)(f). The fact that the payments are part of the net income, however, may affect claims for tax credits in whose net income the social assistance payments are included.

Information returns have to be filed for payments described under paragraph 56(1)(u) of the Act. The recipient of the payments must be issued a T5007 slip. Information on filing requirements for the return is contained in T5007 Guide - Return of Benefits (Rev. 2000).

If you have any further questions on your particular situation, please contact the Client Services Division of your local Tax Services Office.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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