9 July 2007 External T.I. 2007-0219471E5 - Compensation for In-Home Care to Disabled Persons

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 amounts paid to individuals who provide Caregiver support services to clients are excluded from individuals' incomes under paragraph 81(1)(h) of the Act

Position: Question of fact.

Reasons: General comments provided on the requirements of paragraph 81(1)(h) of the Act.

									2007-021947
XXXXXXXXXX 								J. Eckler
(416) 952-8930
July 9, 2007

Dear XXXXXXXXXX:

Re: Caregiver Compensation

We are writing in reply to your letter of November 26, 2006, wherein you asked about the taxability of caregiver compensation. We received a copy of your letter from the Calgary Tax Services Office on January 3, 2007. We understand that your company receives funding from the Alberta Government to provide services to handicapped persons. Your company in turn retains the services of individuals to take disabled persons into their homes.

The situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advanced income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.

Section 81 of the Income Tax Act (the "Act") lists various amounts that are not included in computing a taxpayer's income. In general, paragraph 81(1)(h) of the Act excludes from income social assistance payments paid to an individual caregiver for the benefit of an adult or child under that person's care (the "Cared-for Individual"). This exclusion will apply provided all of the following conditions detailed in Income Tax Technical News #31R2 dated May 16, 2006 are met:

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.

In respect of rent, where a caregiver receives payments for care that are excluded from income by paragraph 81(1)(h) of the Act, as described above, the exclusion may also apply to rent paid to that caregiver by a Cared-for Individual if the rent comes from social assistance payments received by the Cared-for Individual.

As noted in ITTN #31R2, paragraph 81(1)(h) of the Act can apply to a variety of payment arrangements. Of particular relevance to your inquiry is that in a situation in which a government or government agency funds another organization, which retains caregivers as employees or self-employed contractors, the payments from such an organization to the individual can qualify for the exclusion described above.

Whether paragraph 81(1)(h) of the Act is applicable to a particular caregiver/Cared-for Individual situation is a question of fact that must be examined on a case-by-case basis. If the income exclusion in paragraph 81(1)(h) of the Act does not apply, the subject payments would be taxable income of the caregiver. Depending on the facts of each case, the subject payments may be:

• Income from a business or property under section 9 of the Act (in which case, the caregiver is entitled to deduct the expenses incurred to earn that business income) or
• Employment income under section 5 of the Act.

We have, as requested, forwarded your correspondence to the CPP/EI Rulings Division of the CRA for consideration of whether the caregivers are employees of your company. This determination will affect the question of whether CPP contributions and EI premiums must be withheld from the remuneration paid. Additional information may be required from you during the course of their review.

We trust that these comments will be of assistance.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

c.c.

Ray Cuthbert, Director
CPP/EI Rulings Eligibility Division
18th floor, Tower "A" 320 Queen Street
Ottawa ON K1A 0L5