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. Are per diem payments received by the foster parents from a For-Profit corporation considered as being received indirectly by the foster parents as per paragraph 81(1)(h)?
2. If so, where payments that fulfil 81(1)(h) of the Act, is the For-Profit corporation required to file the annual reporting of the amounts paid to the foster parents (i.e. T5007)?
Position: 1. Depends 2.Yes.
Reasons: 1. Question of Fact 2. Reg 233.
XXXXXXXXXX
2011-042288
George A. Robertson, CMA
July 26, 2012
Dear XXXXXXXXXX:
Re: Foster Care Payments Received through a For-profit Corporation (the Corporation)
We are writing in response to your letter of September 14, 2011, concerning the above topic, specifically, you queried whether per diem payments received by foster parents from the Corporation would be considered received indirectly by the foster parents as per paragraph 81(1)(h) of the Income Tax Act (the Act). If so, you also asked whether the Corporation is required to file the annual reporting of the amounts paid to the foster parents (i.e. T5007)?
Your letter and your earlier conversation [Robertson/XXXXXXXXXX] describe:
- The Corporation manages residential care facilities/group homes for children that are wards of XXXXXXXXXX Children’s Aid Societies (CAS)
- The Corporation has been approached to manage foster care programs for various CAS.
- This [new] management would entail selecting and monitoring foster parents who would take foster children into their place of residence.
- For their services, the foster parents receive a per diem payment which helps to cover the costs of caring for the child, including food, clothing, recreational activities, etc. There would be contractual arrangements between the Corporation and the foster parents.
- The Corporation would be paid a per diem amount as well by the CAS, part of which is the per diem that the Corporation in turn pays to the foster parents.
- There could be foster parents that would be employees of the Corporation, as the Employment Opportunities on the Corporation’s website shows.
Generally, paragraph 81(1)(h) of the Act exempts from income social assistance payments to the caregiver for the benefit of a cared-for individual under the caregiver's care. The cared-for individual can be either a child or an adult. The following 6 criteria must all be met for the per diem not to be reported as income.
- The payment is a social assistance payment ordinarily made on the basis of a means, needs, or income test.
- The payment is made under a program provided for by a federal, provincial or territorial law.
- The payment is received directly or indirectly by the caregiver for the benefit of the cared-for individual.
- 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.
- 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.
- 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.
It is our position that foster care payments can be flowed through a taxable (i.e., for-profit) entity and still be exempt from income by virtue of paragraph 81(1)(h) of the Act. The primary consideration is where there is a contractual arrangement between the service provider and the cared-for individual; in this case, the corporation and the foster children. The courts make a clear distinction between a contractual right to payment for services and a statutory right to be paid on the basis of a needs, means or income test under a program provided for by an Act of Parliament or a law of a province. Accordingly, where there is a contractual right to the payment of services provided, the payments would not fulfil the criteria of paragraph 81(1)(h) of the Act.
Despite the fact that a social assistance payment may not be taxable to the recipient, under paragraph 81(1)(h), section 233 of the Income Tax Regulations requires an information slip to be issued.
We trust that these comments will be of assistance.
Yours truly,
Sharmini Ratnasingham
Assistant Director
Personal and Credit Section
Financial Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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