5 April 2004 External T.I. 2004-0060601E5 - 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.

Principal Issues: Are amounts received by respite care providers taxable?

Position: Yes.

Reasons: Amounts received by respite care providers are taxable either as employment or business income. Paragraph 81(1)(h) generally does not apply because the cared-for individual does not reside with the caregiver nor is the caregiver's principal place of residence maintained as the residence of the cared-for individual.

XXXXXXXXXX 			T. Young, CA
				2004-006060
April 5, 2004

Dear XXXXXXXXXX:

Re: Respite Care

We are writing in response to your letter of January 27, 2004, to the Vancouver Tax Services Office concerning the taxation of amounts received by individuals who provide respite care. Your letter was forwarded to us for reply.

In your letter, you explain that the purpose of respite care is to provide respite for the family of the developmentally challenged family member and to provide that family member with the opportunity to be further integrated into the community at large. In your view, payments received by individuals who provide respite care should not be subject to income tax because there is no specific provision in the Income Tax Act (the "Act") that includes in income any amounts received by an individual in respect of the provision of respite care. In particular, you note that payments for respite care are similar to foster care payments, which are exempt from income under the Act.

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 general comments, which may be of assistance to you.

In general terms, amounts received for providing respite care are taxable under the Act either as employment income for individuals who provide the services as employees or business income for individuals who are self-employed. When calculating business income, taxpayers are generally entitled to deduct the expenses incurred to earn the income.

With respect to your concern that respite care payments should be treated the same for income tax purposes as foster care payments, we would like to note that paragraph 81(1)(h) of the Act exempts foster care payments from income. Specifically, paragraph 81(1)(h) exempts from income social assistance payments made to an individual caregiver (the "Caregiver") for the benefit of a foster person (the "Cared-for individual") under the Caregiver's care. The Cared-for individual can be either a child or an adult. The exemption applies to an amount received by the Caregiver when all of the following conditions apply:

1. The payment is a social assistance payment ordinarily made on the basis of a means, needs, or income test;

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

3. The payment is received directly or indirectly by the Caregiver for the benefit of the Cared-for individual;

4. The Cared-for individual is not 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 or territorial law is payable in respect of the Cared-for individual for the period for which the social assistance payment is made; and

6. The Cared-for individual resides in the Caregiver's principal place of residence, or the Caregiver's principal place of residence is maintained for use as the Cared-for individual's residence, during the period for which the payment is made.

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. Therefore, paragraph 81(1)(h) does not apply to income earned by respite care providers.

Please note that our comments are based on specific provisions of the Act. The role of the Canada Revenue Agency ("CRA") is to administer and enforce the Act as passed by Parliament. The CRA 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.

We trust our comments will be of assistance to you.

Yours truly,

Randy Hewlett, B. Comm.

for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch