22 December 2004 External T.I. 2004-0103001E5 - Social Assistance Payments

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: Whether salaries paid to caregivers, from a corporation receiving foster care payments, are excluded from the caregivers' income by virtue of paragraph 81(1)(h) of the Act.

Position: Provided that all of the other requirements of paragraph 81(1)(h) of the Act are satisfied, such salaries will generally be excluded from the recipient's income.

Reasons: Paragraph 81(1)(h) of the Act provides that the social assistance payments may be received "directly or indirectly".

A. Seidel
XXXXXXXXXX (613) 957-2058
2004-010300
December 22, 2004

Dear XXXXXXXXXX:

Re: Payments for Foster Care

We are writing in response to your letter dated October 29, 2004, wherein you requested our comments regarding the application of paragraph 81(1)(h) of the Income Tax Act (the "Act") to payments for the foster care of disabled children.

The situation you would like us to consider is whether paragraph 81(1)(h) of the Act would apply to the payment of salaries from a corporation to a husband and wife (the "Caregivers"), who are the Caregivers for the disabled children. The payments for the foster care of the disabled children would be made to a corporation, of which the Caregivers are the only shareholders and employees, and the corporation would then pay salaries to the Caregivers. It is our understanding that the disabled individuals are to be taken care of in the home of the Caregivers and that the Caregivers currently satisfy all of the following requirements for income tax exemption under paragraph 81(1)(h) of the Act:

• The payments to the Caregivers are ordinarily made on the basis of a means, needs or income test.
• The payments to the Caregivers are made under a program provided for by federal or provincial law.
• The payments to the Caregivers are received directly or indirectly by the Caregivers for the benefit of another individual (the "cared-for individual").
• Each of the cared-for individuals is not the spouse or common-law partner of the Caregivers, related to the Caregivers or related to the Caregivers' spouse or common-law partner.
• No family allowance under the Family Allowances Act or any similar allowance provided for by provincial law is payable in respect of the cared-for individual for the period for which the social assistance payment is received.
• The cared-for individual must live in the Caregivers' principal place of residence, or the Caregivers' principal place of residence is maintained for use as the cared-for individual's residence during the period for which the payments are made.

The particular circumstances in your letter on which you have asked for our views appear to be a factual situation involving specific taxpayers. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on transactions involving specific taxpayers other than in the form of an advance income tax ruling. To the extent that you require confirmation of the tax consequences of proposed transactions, you should be requesting an advance income tax ruling. However, we would point out that advance income tax rulings are not provided in respect of transactions that are substantially completed. Completed transactions are reviewed by the local tax services office. Nevertheless, the following general comments may be of assistance.

Since paragraph 81(1)(h) of the Act only applies to individuals (other than a trust), any amounts received by a corporation as foster care payments should be included in the corporation's business income. The salaries paid by the corporation to the Caregivers, for the foster care of the disabled children in the caregivers home, are normally operating expenses of the corporation and deductible in computing the corporation's income for income tax purposes. Where the salaries received by the Caregivers is a flow-through of the foster care amounts received by the corporation, such salaries will generally not be included in computing the income of the Caregivers where all of the requirements relating to paragraph 81(1)(h) of the Act, as listed above, are met.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch