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:
Does paragraph 81(1)(h) apply to amounts paid to foster parents through a for-profit agency (providing the payments otherwise meet the conditions of the paragraph)?
Position TAKEN:
Yes.
Reasons:
Paragraph 81(1)(h) applies to payments of social assistance received "directly or indirectly by the taxpayer".
XXXXXXXXXX T. Young, CA
2003-003074
September 25, 2003
Dear XXXXXXXXXX:
Re: Foster Care Payments Received through a For-profit Agency
We are writing in response to your letter of July 18, 2003, concerning the above-noted topic.
In your letter, you describe the following scenario. Your client, a for-profit foster care agency (the "Agency"), is licensed by the Ontario Ministry of Child and Family Services to provide foster care services. The Agency recruits and trains foster parents and provides care for children in accordance with the Child and Family Services Act (the "CFS Act"). Under the CFS Act, the Children's Aid Societies place children with approved foster parents in their own network or place such children with foster parents in the Agency's network (or some similar for-profit agency), but the Children's Aid Society remains ultimately responsible for the care and control of the children and may remove them from any foster parent setting.
The Agency receives a per diem for each day that a child is in their network. The Agency, in turn, pays its foster parents a per diem for each day that a child is in their care.
You have asked us to confirm our comments in our earlier discussion (Young/XXXXXXXXX) that paragraph 81(1)(h) would likely apply to the payments to the foster parents.
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 an individual (other than a trust), 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.
It is our longstanding position that foster care payments can be flowed through a taxable (i.e., for-profit) entity and still be exempt from income by virtue of paragraph 81(1)(h) of the Act. That paragraph states, in part, that the amounts shall not be included in income "to the extent that it is received directly or indirectly by the taxpayer...". Accordingly, provided the requirements of the paragraph are otherwise met, the payments to the foster parents will be exempt from income tax.
It should be noted that paragraph 18(1)(c) of the Act prohibits the deduction of any outlays or expenses incurred to earn exempt income. Therefore, the foster parents will not be able to deduct any expenses incurred to "earn" the exempt income. As well, our comments do not apply to any amounts received by the Agency as paragraph 81(1)(h) of the Act can only apply to an individual (other than a trust).
If you require further assistance in determining the income tax treatment of specific payments and whether paragraph 81(1)(h) of the Act would apply, please contact the Client Services Division of you local Tax Services Office.
The documents referred to above 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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