8 December 2009 Internal T.I. 2009-0327361I7 - Payments to a group home

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 operating a group home are exempt under paragraph 81(1)(h) of the Act.

Position: Likely yes. It is a question of fact if all requirements of 81(1)(h) are met.

Reasons: Requirements of 81(1)(h).

                  December 8, 2009

      XXXXXXXXXX  TSO   HEADQUARTERS
                  Income Tax Rulings
                     Directorate
      Attention:  XXXXXXXXXX  Rita Ferguson
                  519-645-5261

2009-032736

Application of paragraph 81(1)(h) to a group home

This is in response to your letter regarding the application of paragraph 81(1)(h) of the Income Tax Act (the "Act") to the operators of a group home.

Background

Your question concerns a taxpayer operating a group home (the "Home") that provides foster care services to children in Ontario. The taxpayer and her spouse (the "Caregivers") live in the Home with their own XXXXXXXXXX children and up to XXXXXXXXXX foster children (the "Foster Children"). Monthly payments are received from various Children's Aid Societies (the "CAS") for the Foster Children placed with them. The per diem rate received has been set by the provincial Ministry of Children and Youth Services (the "Ministry"). The rate was based on a proposal for services and budget submitted to the Ministry by the Home. The Caregivers have prepared statements of income and related expenses for the care of the Foster Children on the basis of the Home being operated as a partnership between them. The taxpayer has claimed an exemption under paragraph 81(1)(h) of the Act for the net income earned from the operation of the Home. You have requested our assistance to determine if the exemption is valid and applicable in this case where the Home appears to be operating as a business.

General information about foster care in Ontario was provided by XXXXXXXXXX (Ferguson/XXXXXXXXXX Sep 28/09). Payments to foster parents in Ontario consist of a basic rate per child for room and board (regardless of age) plus varying allowances for clothing and spending (depending on age). The basic rate may be increased where the foster parent provides "specialized care" (generally provided only by more experienced foster parents) or "treatment care" (for specific high needs children). These rates do not depend on any means, needs or income test applied to the foster parent. A foster parent cannot have more than four children in care at one time. A group home provides additional services for children and therefore they charge much higher per diem rates, which vary depending on the programs being provided by the group home. The rates must be approved by the Ministry which ultimately pays them through the CAS.

Our Comments

Income Tax Technical News No. 31R2 ("ITTN 31R2") describes the application of paragraph 81(1)(h) to individuals who are foster care providers. The income tax exemption applies to an amount received by a caregiver when all of the following conditions apply:

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.

Where all of the conditions required by paragraph 81(1)(h) of the Act as described above are met, the provision will apply to exempt payments received, even where such amounts would otherwise be business income.

The Income Tax Rulings Directorate has issued numerous Technical Interpretations in which the application of paragraph 81(1)(h) of the Act is considered. Of relevance to your inquiry is Technical Interpretation 2005-0114371, which confirms that the number of individuals residing with a taxpayer will not, in and of itself, prevent the application of 81(1)(h)of the Act. Additionally, in Technical Interpretations 9808932 and 990898, it was concluded that the exemption under 81(1)(h) of the Act will not be denied on the basis that the income would otherwise be considered as being received in the course of an individual's business or employment.

In considering whether the requirements of paragraph 81(1)(h) of the Act are met by the Home in this particular case we must first determine if the payments being received are social assistance payments received for the benefit of the Foster Children, and if so, whether those payments are ordinarily based on the basis of a means, needs or income test. Technical Interpretation 9932687 indicates that the means, needs or income test can be applicable to either the recipient of the social assistance payments or to the person for whose benefit the payment is made.

The term "social assistance" is not defined in the Act. However, ITTN 31R2 provides the following meaning for purposes of paragraph 81(1)(h) of the Act:

"Generally, social assistance means aid made by a government or government agency on the basis of need. It does not matter if the payments are made directly by a government or government agency or if they are received indirectly through another organization, be it a not-for-profit or for-profit entity."

It is our view that the payments to the Home would qualify as social assistance because the payments are based on the amounts required to provide the basic needs of the Foster Children (i.e. food, shelter and clothing) plus amounts required for special needs that are due to developmental or behavioural issues (e.g. extra supervision and treatment programs). It is also our view that the requirement that the social assistance be ordinarily based on a means, needs or income test is satisfied by the implicit test applicable to the Foster Children. This view is consistent with our interpretations provided to foster parents who provide care outside of a group home setting. See, for example, our documents 2005-0131341, 2004-0103001, 2003-0050841, 2003-0030745 and 2002-016113.

We would note that ITTN 31R2 also provides additional information about the requirement that the cared-for individual reside in the caregiver's principal place of residence. The "principal place of residence" requirement would not be met if the Caregivers and the Foster Children in the Home do not share common living areas in the residence. This includes the kitchen, living room, dining room, family room and entrances to the home. The living arrangements must be such that the Caregivers are actually "residing with" the Foster Children. We are unable to comment as to this aspect of the Caregivers' situation.

In summary, we can confirm that where all of the requirements for paragraph 81(1)(h) of the Act are met, payments from the CAS to individuals operating a group home may be exempted in the same manner as payments to other foster parents. This may be the case even where the individuals are operating the group home as a for-profit commercial enterprise.

We trust that these comments will be 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.

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