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 CCRA.

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

Principal Issues: Whether certain payments under the Choices for Youth program are "social assistance" and therefore included in income pursuant to paragraph 56(1)(u) of the Act such that T5007 information returns must be filed in respect of such amounts.

Position: The payments that are "social assistance" are included in income and T5007's must be filed.

Reasons: There are two different payments made to the youth. Those payments that are based on a "means, needs or income test" are "social assistance" and therefore included in income pursuant to paragraph 56(1)(u) of the Act and T5007's must be filed. Those payments that are a reimbursement of expenses are not "social assistance" and therefore not income and no T5007 needs to be filed.

		April 24, 2002

	Newfoundland and Labrador	HEADQUARTERS
	     Tax Services Office	A. Seidel, CMA
	VECR Division	(613) 957-2058

	Attention: Tom Warren
	Income Tax Technical Advisor
		2002-012752

Social Assistance

This is in reply to your memorandum, dated March 5, 2002, concerning the reporting of financial assistance provided to certain youths in the province of Newfoundland and Labrador (the "Province").

Background

The Child, Youth and Family Services Program of the Province offers services to youths, aged 16-21, who cannot reside with their parents due to concern for their safety (i.e. physical or sexual abuse). These youths sign a Youth Services Agreement which outlines the responsibilities of the youths and the social worker assigned to a particular youth. In order to receive support under this program, there must be a case plan developed outlining the youth's needs (emphasis added), goals and a plan for achieving these goals. A social worker must meet with the youth, at least monthly, to help with budgeting and to address various other areas of the youth's life (i.e., school, counselling etc.). The social worker may meet with the youth on a more frequent basis, depending on the youth's level of independence. If the youth has alcohol, drug or budgeting issues, for example, the social worker will meet weekly with the youth, assume responsibility for the budgeting of money the youth will receive and make all required payments directly to service providers (i.e. care-givers, counselling agency, etc.). The monies issued to youths who have signed a Youth Services Agreement are for the purpose of providing the services they require (i.e., living arrangements, school support, counselling, etc.) and are considered to be monies required for the cost of their care.

There are two amounts that are received by a youth. These amounts are recorded under two codes - code 71 and code 74. Code 71 represents the base amount that is paid monthly to a youth. This amount is paid until the Youth Services Agreement is terminated. Code 74 encompasses monies paid to a youth that are over and above the monthly base amount. This payment includes one-time payments for such things as medical expenses, counselling, job-training, etc.

Issue

Are the amounts received by a youth "social assistance" such that they are included in computing the income of a youth pursuant to paragraph 56(1)(u) of the Income Tax Act (the "Act"). If so, must the Province prepare and provide T5007 information returns.

Newfoundland and Labrador TSO's (the "TSO") Views

In the August 20, 2001 letter to XXXXXXXXXX , the TSO indicated that it was their view that the assistance payments made to a youth are made "on the basis of a means, needs, or income test". Such payments would therefore be considered "social assistance" and included in computing the income of a youth pursuant to paragraph 56(l)(u) of the Act. The payments made to a youth would also be considered to be a payment made by a person that is described in paragraph 56(l)(u) of the Act such that, for the purposes of subsection 233(1) of the Income Tax Regulations (the "Regulations"), any required T5007 information returns would have to be prepared by the payer. The letter also stated that paragraph 110(1)(f) of the Act provides an offsetting deduction for social assistance payments included in computing the income of a youth under paragraph 56(l)(u) of the Act.

Analysis

Paragraph 56(1)(u) of the Act includes in income "a social assistance payment made on the basis of means, needs, or income test and received in the year...". Payments included in income under paragraph 56(l)(u) of the Act are deductible in computing taxable income in accordance with paragraph 110(1)(f) of the Act.

The first requirement in paragraph 56(1)(u) of the Act is that the amount must be "social assistance". The term "social assistance" is not defined in the Act. One must therefore look to the meaning of this expression as they are ordinarily defined and understood. Part V (CANADA HEALTH AND SOCIAL TRANSFER) of the Federal-Provincial Fiscal Arrangements Act defines "social assistance" to mean "aid in any form to or in respect of a person in need". As Part V of this act deals with, among other things, the funding of social programs, it is our view that this is an appropriate definition of "social assistance".

The second requirement in paragraph 56(1)(u) of the Act is that the payment must be "made on the basis of a means, needs or income test". In early 1994, the Social Policy Branch of Human Resources Development Canada (HRDC) prepared an unpublished manuscript titled "Social Assistance in Canada, 1994". It was prepared in the context of a study of social assistance in the 24 member countries of the Organization for Economic Cooperation and Development. The Notes to this report describe "means, needs or income test" as follows:

"There are three main types of financial eligibility tests used in Canadian financial assistance programs. They are:

the needs test: takes into account assets, income, and needs, as defined in provincial legislation (i.e., social assistance programs);

the income test: based solely on the income of each applicant; benefit levels set by legislation, but not based on specific needs (e.g., federal Guaranteed Income Supplement for needy seniors); and

the means test: same as income tested program, but also includes an asset test.

Where these two requirements are met, paragraph 56(1(u) of the Act will apply to any payments of social assistance received in the year, regardless of who the payer is. In this particular case, the payments are being made by a non-profit community based agency that is funded by the Province.

Paragraph 110(1)(f) of the Act allows a taxpayer to deduct, in computing taxable income for a taxation year, any social assistance payment made on the basis of a means, needs or income test and that is included in computing income for the taxation year by virtue of clause 56(1)(a)(i)(A) or paragraph 56(1)(u) of the Act.

Pursuant to subsection 233(1) of the Regulations, every person who makes a payment described in paragraph 56(1)(u) of the Act shall make an information return in prescribed form in respect of the payment. Subsection 233(2) of the Regulations describes those payments that are not subject to the application of subsection 233(1) of the Regulations. They include a payment that:

(a) is in respect of medical expenses incurred by or on behalf of the payee;

(b) is in respect of child care expenses, within the meaning assigned by paragraph 63(3)(a) of the Act, incurred by or on behalf of the payee or a person related to the payee;

(c) is in respect of funeral expenses in respect of a person related to the payee;

(d) is in respect of legal expenses incurred by or on behalf of the payee or a person related to the payee;

(e) is in respect of job training or counselling of the payee or a person related to the payee;

(f) is paid in a particular year as a part of a series of payments, the total of which in the particular year does not exceed $500; or

(g) is not a part of a series of payments.

Our Comments

The financial support provided to a youth in the Province is dependent on the individual circumstances of each individual. The "core" payments to a youth are intended to cover the cost of rent, groceries, clothing, a school incentive (based on attendance), social recreation (extra curricular activities) and bus passes. There is a standard amount of financial support paid to a youth in respect of these core payments. This standard amount of financial support is the amount that is referred to as a Code 71 payment.

The payments made to a youth in the Province that are in respect of "Code 71" expenses would generally be considered to be "social assistance" payments that are "made on the basis of a means, needs or income test". Accordingly, such amounts would be included in computing the income of the recipient, in the taxation year they are received, pursuant to paragraph 56(1)(u) of the Act. The recipient would also be entitled to a deduction for such amounts in computing taxable income pursuant to paragraph 110(1)(f) of the Act. The payer of such amounts would be required to file the information return prescribed in subsection 233(1) of the Regulations.

The additional financial support that is available to a youth in the Province is a payment that represents a sharing of costs incurred in respect of any of the following expenses: tutoring, certain school fees, driving lessons, medical expenses, counselling fees, job-training costs and some post-secondary costs. These amounts of financial support are the amounts that are referred to as Code 74 payments.

The payments made to a youth in the Province that are in respect of "Code 74" expenses could, depending on the circumstances, be considered to be "social assistance". However, to the extent that these payments are a reimbursements of expenses, and are not "made on the basis of a means, needs or income test", such amounts would not be included in computing the income of the recipient. The payer of such amounts would not be required to file the information return prescribed in subsection 233(1) of the Regulations.

Conclusion

To the extent that a payment to a youth is "social assistance" and is "made on the basis of a means, needs or income test", the amount is included in income pursuant to paragraph 56(1)(u) of the Act and the payer must, therefore, prepare the information return prescribed in subsection 233(1) of the Regulations.

We hope that our comments are of assistance. If you wish to discuss any of the above further, please contact the writer.

John Oulton, CA
Section Manager
Business and Individual Section
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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