13 February 2002 External T.I. 2002-0121285 - PAYMENTS TO CAREGIVERS

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:

Tax treatment of amounts received to care for individual with developmental disability in the caregivers' home.

Position TAKEN:

Question of fact. General information provided.

Reasons:

Insufficient information provided.

XXXXXXXXXX 2002-012128
T. Young, CA
February 13, 2002

Dear XXXXXXXXXX:

Re: Amounts Received to Provide Care to Individual with Developmental Disability

This is in reply to your letter of January 31, 2002, requesting a ruling on the income tax treatment of certain amounts received by XXXXXXXXXX and her husband (the caregivers) to care for an individual with a developmental disability in their home.

In your letter, you stated that the caregivers receive $XXXXXXXXXX per month directly from the Government of Alberta, Persons with Developmental Disabilities Regional Board. Your association receives $XXXXXXXXXX per month to administer the program. You have asked us if the caregivers are employees of your association and if you are required to withhold and remit income tax, Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums.

Our Comments

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 submitted in the manner set out in Information Circular 70-6R4, Advance Income Tax Rulings, dated January 29, 2001. Since your letter deals with ongoing transactions, we are unable to provide you with an advance income tax ruling. It would also be necessary to review all relevant documentation before a definitive determination of the tax implications could be made. Therefore, we can only provide you with the following general comments.

Paragraph 81(1)(h) of the Income Tax Act excludes certain social assistance payments from the income of a taxpayer, who is an individual, if all of the conditions set out in the paragraph are met. In order for the payments to the caregivers to be exempt under paragraph 81(1)(h), they would have to be payments of social assistance and would have to satisfy the following conditions:

1. The payments must be ordinarily made on the basis of a means, needs, or income test.

2. The payments must be made under a program provided for by federal or provincial law.

3. The payments must be received directly or indirectly by the caregiver for the benefit of the cared-for individual.

4. The cared-for individual cannot be 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 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 payments are made.

6. The cared-for individual must live in the caregiver's principal place of residence; or the caregiver'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.

If all of the above conditions are met, the payments are exempt from income for income tax purposes.

Subsection 12(1) of the CPP Act defines contributory salary and wages of a person for a year to be the person's salary and wages as computed in accordance with the Income Tax Act. Therefore, payments that are not included in income pursuant to paragraph 81(1)(h) of the Act are not subject to CPP. However, as discussed below, they may still be subject to EI premiums.

If the payments are not exempt pursuant to paragraph 81(1)(h), they will likely be either employment or business income, depending on the contractual and factual relationship between your association and the caregivers. For more information on employer-employee relationships, see the pamphlet called "Employee or Self-employed?" (RC4110), which can be found on our web site at http://www.ccra-adrc.gc.ca/E/pub/tg/rc4110ed/rc4110ed.html. If you are unsure if an employer-employee relationship exists between your association and the caregivers, you can request a ruling from the Edmonton Tax Services Office using form CPT1, "Request for a Ruling as to the Status of a Worker under the Canada Pension Plan or Employment Insurance Act". The CPT1 form may be found on our website at http://www.ccra-adrc.gc.ca/E/pbg/tf/cpt1bq/README.html.

If there is an employment relationship between your association and the caregivers, the payments are insurable earnings for purposes of the EI Act and you are required to deduct and remit EI premiums even if the payments are exempt from income pursuant to paragraph 81(1)(h) of the Act.

If the payments constitute business income to the caregivers, your association is not required to deduct and remit income tax, CPP contributions or EI premiums.

If you require further assistance in determining the income tax treatment of these payments and whether paragraph 81(1)(h) would apply, please contact the Client Services Division of the Edmonton 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

c.c. Client Services Division

Edmonton Tax Services Office

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