26 February 2008 External T.I. 2007-0241611E5 - In-Home Care of Disabled Children

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 the income received for caring for children with acquired brain injuries is taxable.

Position: Yes.

Reasons: A social assistance payment will not be included in the income of the Caregiver for income tax purposes when all of the requisite conditions in paragraph 81(1)(h) are met. Where not all of the conditions are met, and is earned in the course of a business, the amount is taxable.

								2007-024161
XXXXXXXXXX 							Richard Aronoff
								613-941-7239
February 26, 2008

Dear XXXXXXXXXX :

Re: In-Home Care of Disabled Children

This is in reply to your letter of June 18, 2007 inquiring whether the income you receive for taking care of children with acquired brain injuries is taxable. You state that you are paid directly from the childrens' insurance companies through their consulting psychologist(s).

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 a request for an advance income tax ruling submitted in the manner set out in 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. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature only and are not binding on the CRA.

As discussed in Income Tax Technical News, Issue No. 31R2, dated May 16, 2006, paragraph 81(1)(h) of the Income Tax Act (the "Act") provides an exemption from inclusion in computing the income of a taxpayer in respect of certain social assistance payments received by an individual caregiver (the "Caregiver") for the benefit of a foster person (the "Cared-for individual") under the care of the Caregiver. The Cared-for individual can be either a child or an adult. A social assistance payment will not be included in the income of the Caregiver for income tax purposes, when all of the following conditions 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.

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. An individual's "principal place of residence" is the place where the individual regularly, normally or customarily lives.

In determining whether the foster care payments are made on the basis of a means, needs, or income test, we consider each one to be a financial test:

• An "income" test is a test based solely on the income of the applicant.
• A "means" test, which is similar to an income test, also takes into account the assets of the applicant.
• A "needs" test takes into account the income, assets and financial needs of the applicant.

The CRA can only make a determination of whether paragraph 81(1)(h) of the Act is applicable on an individual Caregiver/Cared-for individual basis with reference to all of the above-noted criteria. From the limited information you have provided to us in your letter, condition 2 does not appear to be met and it appears likely that conditions 1 and 5 are not met. Therefore, it is our view that the income you earn for caring for these children is business income. In the event that you are operating your business through a corporation, the income would be business income to the corporation. When calculating business income, taxpayers are generally entitled to deduct the expenses incurred to earn the income. For more information on employer-employee relationships, see the pamphlet called "Employee or Self-employed?" (RC4110).

We trust our comments will be of assistance.

Yours truly,

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