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: 1. Whether amounts paid under an agreement XXXXXXXXXX , to provide a support home for a disabled adult, are excluded from income under paragraph 81(1)(h) of the Act. 2. Whether such payments have any CPP or EI implications.
Position: 1. It does not appear that the requirements of 81(1)(h) are met. However, from the information provided, there appears to be no source of income upon which to tax the payments 2. CPP and EI implications depend on the contractual relationship, if any, with the caregivers.
Reasons: 1. Requirements of 81(1)(h). 2. If no employment and no business is carried on, the payments may have no source for income tax or CPP/EI purposes.
2009-031044
XXXXXXXXXX Rita Ferguson
(519) 645-5261
November 13, 2009
Dear XXXXXXXXXX :
Re: Payments under Family Managed Service Agreements
This is in response to your inquiry about the application of paragraph 81(1)(h) of the Income Tax Act (the "Act") to payments made under two XXXXXXXXXX (the "Agreements") between the XXXXXXXXXX (the "Board") and XXXXXXXXXX (the "Administrator"). You have also asked about the CPP and EI implications of the payments.
We understand that the Agreements are in respect of two adults with developmental disabilities (the "Individuals"). The Individuals reside with the Administrator and his spouse (the "Caregivers") whom they have known since childhood and neither of the Individuals is related to either of the Caregivers. The Individuals have appointed the Administrator to receive the funds from the Board to be used pursuant to the terms of the Agreements to support them in their daily lives, and specifically for the provision of a "support home". The Administrator distributes the funds to himself and his spouse in their capacity as Caregivers for the continuing provision of the support home for the Individuals.
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.
Paragraph 81(1)(h) of the Act exempts from income social assistance payments to an individual caregiver for the benefit of a person under the caregiver's care. The cared-for individual can be either a child or an adult. The income tax exemption applies to an amount received by the caregiver when all of the following conditions apply:
(a) The payment is a social assistance payment ordinarily made on the basis of a means, needs, or income test.
(b) The payment is made under a program provided for by a federal, provincial or territorial law.
(c) The payment is received directly or indirectly by the caregiver for the benefit of the cared-for individual.
(d) 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.
(e) 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.
(f) 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.
If all of the above criteria are met, a social assistance payment will not be required to be included in income even if it might otherwise be considered employment or business income. It will be a question of fact if all of the above conditions are met in any particular case.
Notwithstanding that conditions (b) - (f) appear to be met in the situation described; it does not appear that condition (a) is met. Specifically, in order for social assistance payments to be exempted by this provision they must be "ordinarily made on the basis of a means, needs or income test". Income Tax Technical News Issue No. 31R2 ("ITTN 31R2") states that the CRA considers each one of the means, needs or income tests to be a financial test and describes each as follows:
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.
Because we have been advised by the Board that eligibility under the program absolutely does not include any financial means, needs or income test, the payments will not meet the requirements to be exempted under paragraph 81(1)(h) of the Act.
Whether the payments are taxable to the Caregivers as employment or business income would depend on the particulars of the situation. Unless the facts and circumstances indicate that the Caregivers are providing the support home to the Individuals as part of a business carried on by them with a reasonable degree of commerciality, then it is unlikely that the payments would be considered business income.
Although there is nothing to indicate that the Caregivers would be considered to be employees of the Board, we note that the Agreements contemplate that an Administrator may have to hire employees to perform the services specified in the Agreements. However, where the Administrator and his spouse are performing such services, it is possible that there is no employment relationship. Whether the Administrator's spouse is his employee would require a thorough examination of all the facts and circumstances surrounding the provision of the support home. Useful information may be found in the CRA Guide RC4110 "Employee or Self-Employed?" including the procedures for requesting a ruling on the matter if required. The CPP or EI implications are dependent on the contractual relationship, if any, between the Administrator and the Caregivers.
In the absence of business or employment as a source of income, and where such payments are not based on a means, needs or income test they would not fall within any provision of the Act and would not be taxable.
We trust our comments will be of assistance to you.
Yours truly,
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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