3 November 2014 External T.I. 2014-0537191E5 - Social assistance- gift cards

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. Request for information on T5007.

Position: 1. No position taken.

Reasons: 1. General information provided.

XXXXXXXXXX
2014-053719
Robert Dubis

November 3, 2014

Dear XXXXXXXXXX:

We are replying to your correspondence of May 1, 2014, in which you asked for our comments regarding the XXXXXXXXXX gift cards you received from a XXXXXXXXXX. You stated that the XXXXXXXXXX issued you a form T5007 for the XXXXXXXXXX tax year and you are asking if the value of the gift cards should be included in your income for tax purposes.

This technical interpretation provides general comments about the provisions of the Income Tax Act (the "Act") and related legislation. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.

Paragraph 56(1)(u) of the Act includes in a taxpayer's income social assistance payments received in the year that are made on the basis of a means, needs, or income test (except to the extent that such payments are not otherwise included in the taxpayer's income or the income of the taxpayer's spouse or common-law partner). However, amounts included in income under paragraph 56(1)(u) are matched by an offsetting deduction under paragraph 110(1)(f) of the Act, so that the amount is not taxable to the individual, although it may affect certain income-tested benefits.

Generally, social assistance means a system whereby financial assistance is extended to those individuals on the basis of need. In our view, social assistance may be provided by a private organization, as well as a government. Generally, a gift card can be considered a form of payment. For a social assistance payment to be included in income under paragraph 56(1)(u) of the Act, it must be made on the basis of a means, needs, or income test. Each one of these tests is considered to be a financial test. An "income test" is based solely on the income of each taxpayer. A "means" test encompasses both an income test and an asset test. A "needs test" takes into account assets, income and needs of the taxpayer.

When an organization concludes that it has provided social assistance to an individual, section 233 of the Income Tax Regulations (the "Regulations") requires the organization that provided the social assistance to report the payment on a form T5007, Statement of Benefits, unless the payment is specifically excluded from this reporting requirement. For example, under subsection 233(2) of the Regulations, organizations are not required to report a payment that is made in a year as part of a series of payments, the total of which is $500 or less in the tax year, or a payment that is not a series of payments.

Guide T4115, T5007 Guide - Return of Benefits, available at www.cra-arc.gc.ca, has more information on the types of social assistance payments that are exempt from reporting. It is the practice of the CRA not to require payments excluded from the T5007 reporting requirements to be included in a recipient's net income, so that these items will not affect the calculation of income-tested benefits.

If the gift cards were provided without reference to a "means, needs, or income test", or were not a part of a series of payments, the amount received could be considered to be a gift or windfall. Gifts or windfalls are not taxed under the Act. Non-taxable windfalls and gifts are described in Interpretation Bulletin IT-334R2, Miscellaneous Receipts, which is also available on the CRA website. Paragraph 3 of IT-334R2 lists the factors indicating whether an amount is a windfall.

The XXXXXXXXXX appears to have made a determination that it provided you with social assistance on the basis of a means, needs or income test and therefore, must be reported in accordance with the Regulations. The T5007 slips make it easier for recipients of the assistance payments to determine the amounts they received during the year. As previously mentioned, any payments included in income under paragraph 56(1)(u) of the Act are also deducted when calculating taxable income on your income tax return. The assistance received is reported on line 145 and the deduction is claimed on line 250 of the General 2013 - Income Tax and Benefit Return.

In response to the questions you have asked from the point of view of an organization giving away gift cards, we have the following general comments, which may be of assistance. You are subject to the reporting requirements mentioned only if you provide social assistance on a "means, needs, or income test" and that assistance does not qualify for a reporting exemption under the Act. Alternatively, if you provide a XXXXXXXXXX gift card on a random basis to individuals without regard to a means, needs, or income test, or not as a series of payments, it could be viewed as gift. As noted, gifts are generally not included in computing income of the recipient for tax purposes. However, gifts of this nature would not qualify as a charitable gift or donation on your tax return.

We trust our comments will be of assistance.

Yours truly,

Pamela Burnley, CPA, CA
Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch