25 April 2003 External T.I. 2003-0009945 - RESPITE CARE

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 ISSUE:

Is money received by a respite care provider taxable?

Position TAKEN:

Generally, yes.

Reasons:

Paragraph 81(1)(h) does not apply because cared-for individual does not reside with the caregiver, nor is the caregiver's principal place of residence maintained for use as the residence of the cared-for individual.

XXXXXXXXXX T. Young, CA
2003-000994
April 25, 2003

Dear XXXXXXXXXX:

Re: Respite Care

We are writing in response to your letter of February 25, 2003, to the XXXXXXXXXX Tax Services Office that was forwarded to us. In your letter, you state that you care for mentally and / or physically disabled children and adults in your home. The typical stay at your home can range from one to twenty days with the typical stay being approximately 4 days for each individual. You have asked us if the amounts that you receive for providing respite care services are taxable. In particular you enquired about paragraphs 81(1)(h) and 56(1)(u) of the Income Tax Act (the "Act"). In your view, similar to payments for foster care, payments for respite care should not be included in income.

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 ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. However, we are prepared to provide the following comments, which may be of assistance to you.

Paragraph 81(1)(h) of the Act exempts from the income of a taxpayer, certain social assistance payments ordinarily made on the basis of a means, needs, or income test provided certain conditions are met. A payment will be excluded from income where:

1. The payment is made under a program provided for by federal or provincial law;

2. The payment is received directly or indirectly by a caregiver for the benefit of the cared-for individual;

3. 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;

4. 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.

5. The cared-for individual must reside 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 payment is made.

With respect to the last requirement, since respite care is provided on a temporary or short-term basis, it is our view that the cared-for individual could not be residing in the respite care provider's principal place of residence. Similarly, the respite care provider's residence would not be maintained as the cared-for individual's residence.

Consequently, income received for providing respite care generally may be either employment or business income and, accordingly, depends on the facts of each situation. For more information on employer-employee relationships, see the pamphlet called "Employee or Self-employed?" (RC4110).

Paragraph 56(1)(u) of the Act includes in income "a social assistance payment made on the basis of a means, needs, or income test and received in the year... except to the extent that the payment is otherwise required to be included in computing the income for a taxation year of the taxpayer or the taxpayer's spouse or common-law partner". Payments included in income under paragraph 56(l)(u) of the Act are not subject to Part I tax because they are deductible in computing taxable income in accordance with paragraph 110(1)(f) of the Act. However, because paragraph 56(1)(u) only applies to amounts that are not otherwise included in income, it generally does not apply to payments for respite care, which, as stated above, constitute either business or employment income.

Please note that our conclusions are based on specific provisions of the Act. The role of the Canada Customs and Revenue Agency ("CCRA") is to administer and enforce the Act as passed by Parliament. The CCRA strives to carry out this role fairly and uniformly for all taxpayers. In our view, a legislative amendment would be required to exclude payments for respite care from income. Amendments to the Act are the responsibility of the Department of Finance. You may write to the officials in the Tax Policy Branch at the Department of Finance, L'Esplanade Laurier, 140 O'Connor Street, Ottawa, Ontario, K1A 0G5.

The documents referred to in this letter may be found on our web site at www.ccra.gc.ca.

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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