29 July 2009 External T.I. 2009-0312891E5 - Payments to Parent for Attendant Care

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: Are regular payments received by a parent for the attendant care of a disabled child as a result of an accident, from the proceeds of a non-taxable award of damages, taxable to the parent for income tax purposes

Position: Question of fact but probably not.

Reasons: The Tax of Canada (Informal Procedure) decisions in Maurice v. The Queen, [2002] 1 CTC 2172 and Pellerin v. The Queen, 2008 DTC 3210.

July 29, 2009

Dear XXXXXXXXXX :

Re: Amounts Paid to Parent for Attendant Care

We are writing in response to your correspondence dated February 24, 2009 wherein you requested our comments regarding the taxation of amounts received by a parent for the attendant care of a disabled child. We apologize for the delay in responding to your request.

We understand that your client (the "Taxpayer") is the mother of a child that sustained severe injuries as a result of XXXXXXXXXX . You have advised that a non-taxable award of damages was received as a result of the accident and was placed in trust (the "Trust") to facilitate the continuous care of the child. You have asked us to comment whether a monthly payment of $XXXXXXXXXX from the Trust to the Taxpayer for the attendant care of her child would be taxable for income tax purposes.

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. We are, however, prepared to provide the following comments in respect of the issues that you raised. Please note that these comments are of a general nature only and are not binding on the CRA.

Paragraph 3(a) of the Income Tax Act (Canada) (the "Act") provides that the income of a taxpayer for a taxation year is the total of all amounts each of which is the taxpayer's income for the year (other than taxable capital gains from the disposition of property) from a source inside or outside Canada including the taxpayer's income for the year from an office, employment, business or property.

Whether the monthly payments received by the Taxpayer for the attendant care of her disabled child could be considered income from employment or a business (i.e., as a self-employed individual) pursuant to paragraph 3(a) of the Act is a question of fact. We note that two Tax Court of Canada ("TCC") cases heard under Informal Procedure addressed this question, which decisions we discuss below.

Briefly speaking, Maurice v. The Queen [2002] 1 CTC 2172 ("Maurice") concerned a young child who was mentally and physically handicapped after a car accident. At issue was whether amounts paid by the Société de l'assurance automobile du Québec ("SAAQ"), although not taxable to the child, should be included in the income of the child's mother who received them as compensation for the care provided to her daughter on a daily basis. The child's mother could have received reimbursement from the SAAQ for home care assistance paid to third party care providers but instead elected to receive an equivalent weekly allowance from the SAAQ in return for her provision of care to her child.

Justice Tardif J. stated at paragraph 28 that:

"... the appellant was not an employee, since she was completely independent in the way she did her work, worked in her own environment with her own tools and was not in any way part of a third party's business. Nor was the appellant an independent contractor within the meaning of the case law, mainly because, although she acted independently in performing her work, she was not free to organize her time as she saw fit due to her daughter's specific and continuous needs and because her alleged potential profit was fixed in advance and in no way depended on her own efforts."

Justice Tardif J. concluded that the personal home care assistance payments received by the mother from the SAAQ were not taxable as employment, business income or otherwise, stating at paragraph 31 that:

"In the case at bar, the appellant chose to assume responsibility for her daughter herself, not for the pecuniary benefits she could derive therefrom but rather to fulfil her obligation of support, rightly considering that she was the person best qualified to look after her child. The monetary benefits resulting from that maternal family activity are no more taxable than profits from hobbies or simply amounts that some people give to their non-working spouses to attend to their family's various needs."

A similar conclusion was reached by the TCC in Pellerin v. The Queen, 2008 DTC 3210, which concerned a twenty year old man who sustained significant and permanent partial disabilities following a serious road accident. At issue was whether amounts paid by the SAAQ, although not taxable to the disabled individual, should be included in the income of his mother who received them as compensation for the care provided to her son on a daily basis in their family home. There were various distinguishing facts from Maurice as in this case the son was an adult who was not the subject of any legal protection, and therefore had full legal capacity despite his injuries. Also, the SAAQ paid the compensation directly to the son so that he could obtain the assistance necessary because of the permanent after-effects of his injuries. The son had therefore decided to give the compensation to his mother, in recognition of the assistance she provided to him.

In this case, Justice Tardif J. again concluded that the allowance received by the mother from the SAAQ was not taxable as employment income, stating at paragraphs 17 to 20 of the decision, as follows:

"17 Although the work was described briefly, the duties were not defined. This was undeniably a relationship in which the emotional dimension played a predominant role and in which supervision featured prominently.

18 The Appellant was very concerned about her son's health and safety and devoted all her energy and efforts to ensure that her son had the best quality of life possible.

19 This was in no way a business relationship or even an employment contract. The affection stemming from the parental bond was the primary and fundamental reason for the relationship. The notion of profit was non-existent and there was no relationship of subordination.

20 How should the amounts that the Appellant was paid by her son be characterized? Certainly not as remuneration in exchange for work. The amounts had nothing to do with the services rendered. They were essentially amounts given gratuitously out of appreciation and recognition. It is clear that the Appellant would have provided the same care in the same way, even without a gift or recompense."

Based on the abovementioned jurisprudence and on the assumption that a substantially similar fact pattern exists, it is our view that the home care assistance allowance received by the Taxpayer from the Trust for the care of her child, would not be taxable pursuant to paragraph 3(a) or any other provision of the Act.

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