20 March 2012 External T.I. 2011-0407071E5 - Reporting Requirements for Services Contract

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: Is a T4A slip required to be issued for amounts paid under a service contract to care for a disabled adult

Position: Question of Fact

Reasons: Where the income is exempt under 81(1)(h), no reporting requirement. Where 56(1)(u) applies, payer is required to file form T5007. Where the amount is considered income from a business, payer is required to issue a T4A slip.

XXXXXXXXXX 

						2011-040707
						Tom Baltkois

March 20, 2012

Dear XXXXXXXXXX :		

RE: Service Contract for the Care of a Disabled Adult - T4A Slips

We are writing in response to your letter of May 18, 2011 in which you maintain that T4A slips were erroneously issued for several taxation years in connection with a service contract for the care of a disabled adult, and that the amounts received should be exempt from tax. In your letter you stated that you are not related to the cared-for individual, have cared for this individual in your home for the past 15 years, are not a registered group home, and did not begin to receive T4A slips until the 2008 tax year.

Your letter refers to paragraph 81(1)(h) of the Income Tax Act ("the Act") which exempts from income, social assistance payments received by foster parents for the care of foster children that reside in their principal residence and by caregivers of developmentally handicapped adults that reside in the caregiver's principal residence.

In order to qualify for the exemption under paragraph 81(1)(h) of the Act, the payments must be received under a program provided for by an Act of Parliament or a law of a province; the caregiver and the cared-for individual cannot be related; and the social assistance must ordinarily be made on the basis of a means, needs or income test. Where all of the conditions for the exemption are met, there is no requirement under the Act for the payer to issue an information slip. The Act defines "related persons", to include individuals that are connected by blood relationship, marriage or common-law partnership or adoption. It is a question of fact as to whether the payments in question meet all of the conditions.

However, where the individuals are related, the payments received may be considered social assistance under the Act. Paragraph 56(1)(u) of the Act includes in income, social assistance payments received in a year that are made on the basis of a means, needs or income test. Although the social assistance payments are included in income, there is an offsetting deduction available under paragraph 110(1)(f) of the Act, which effectively results in no income tax payable on the receipt of these types of social assistance payments. Subsection 233(1) of the Income Tax Regulations ("the Regulations") requires that every person who makes a payment described in paragraph 56(1)(u) of the Act, to make an information return in prescribed form in respect of the payment. In this case, the payer is required to report the payment on prescribed form T5007.

Where the payments are not social assistance, the amounts received by a caregiver may be taxable as income from a business. The business would be entitled to a deduction for the expenses incurred to earn that business income. Where the payments to the caregiver are considered income from a business, the payer is required to file an information return in a prescribed form (T4A slips and T4A Summary) with respect to the payment.

For your information, the Federal Court of Appeal decision in Sandra Gallant vs. The Queen dealt with the taxation of social assistance and you may wish to review that decision on the Federal Court of Appeal's website. The original Tax Court of Canada decision is available on the Tax Court of Canada's website.

The tax treatment of amounts received in connection with a service contract for the care of a disabled adult is always a question of fact. In situations where you have already received an assessment related to such payments and dispute the tax so assessed or the Canada Revenue Agency's interpretation of the income tax law, you can file a Notice of Objection to the assessment, assuming certain conditions are met. CRA Guide P148 entitled, Resolving Your Dispute: Objection and Appeal Rights under the Income Tax Act, may be of assistance in this regard.

We trust these comments are helpful.

Yours truly,

Sharmini Ratnasingham
Assistant Director
For Director
Financial Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch