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: What is the taxable status of payments received by the mother of a disabled adult from a trust that was created with a financial settlement received by her son as a result of the accident that caused his disability?
Position: Not taxable.
Reasons: Not income from a source that is taxable under the Act. The minimal nature of the monthly payment and the fact that it is possible there may no payment at all if the trust fails to earn income, suggests that the relationship in existence between the mother and her disabled son and/or his trust is personal. Therefore, the monthly payment, if any, merely represents a partial recoupment of the personal expenses incurred by the mother to care for her disabled adult son.
February 25, 2005
REGINA TSO HEADQUARTERS
Lorette Shaw Randy Hewlett
Client Services Division (613) 941-7239
2005-011035
Payments From A Trust To The Mother Of A Disabled Adult
We are writing in response to your request for our opinion on the above-noted issue.
You indicated that the disabled adult received a financial settlement as a result of a disability suffered from an accident. The financial settlement was put into a trust that is administered by the disabled adult's grandfather. The disabled adult resides with and is cared for by his mother. Pursuant to an order of the Court of the Queen's Bench of Alberta issued under the Dependent Adults Act, the mother "XXXXXXXXXX". In other words, if the trust does not earn any income the mother does not receive any payment. You inquired as to the taxable status of the payments received by the mother.
The basic rules for income computation are set out in section 3 of the Income Tax Act (the "Act"). Specifically, section 3 of the Act requires a taxpayer to include in income all amounts from a source that is an office, employment, business, property or other source (generally covered in Part I, Division B, Subdivision d of the Act). In our view, the monthly payment to the mother is not income from any of these sources and therefore, is not taxable. For example, there is no indication that the mother is carrying on a business or that she is an employee of her son or the trust. In our view, the minimal nature of the monthly payment and the fact that it is possible there may be no payment at all if the trust fails to earn income, suggests that the relationship in existence between the mother and her disabled son and/or his trust is personal. Therefore, the monthly payment, if any, merely represents a partial recoupment of the personal expenses incurred by the mother to care for her disabled adult son.
We trust our comments are of assistance.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
John Oulton, CA
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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