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: What is the tax treatment of monthly benefit payments to families under the XXXXXXXXXX Employment Incentive (XXXXXXXXXX) program and how to report it?
Position: Likely included in the recipients income under paragraph 56(1)(u) with an offsetting deduction from taxable income, pursuant to paragraph 110(1)(f). They will be required to be reported on T5007.
Reasons: Assistance appears to be a social assistance made on the basis of a means, needs or income test.
XXXXXXXXXX 2024-101909
Fanta Yao, CPA, CGA
July 26, 2024
Dear XXXXXXXXXX:
Re: XXXXXXXXXX Employment Incentive (XXXXXXXXXX) Program
This is in reply to your email of May 22, 2024, requesting our comments regarding the tax treatment of monthly benefit payments made under the XXXXXXXXXX Program which is intended to financially support low-income earners with young children.
You state that the XXXXXXXXXX program is an application-based program that will pay eligible families monthly benefit payments that range from $400 to $600. You explain that the amount of the payment is dependent on the number of eligible children in the household. In addition, eligibility requires gross family employment and/or self-employment income to be at least $500 per month, and the amount of the payment begins to be reduced when the maximum monthly family income exceeds a threshold that is also dependent on the number of eligible children.
Our Comments
This technical interpretation provides general comments about the provisions of the Income Tax Act (the Act) and related legislation (where referenced). 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 70-6R12, Advance Income Tax Rulings and Technical Interpretations.
Given the limited information available, we are prepared to provide the following general information.
Paragraph 56(1)(u) of the Act requires that social assistance payments received in the year and made on the basis of a means, needs, or income test are to be included in a taxpayer’s income unless such amounts are required to be included in the taxpayer’s income or the income of the taxpayer’s spouse or common-law partner under a different provision of the Act. Amounts included in a taxpayer’s income under paragraph 56(1)(u) of the Act are offset by a matching deduction under paragraph 110(1)(f) of the Act, so that there are no income tax implications related to this income inclusion other than it may affect certain income-tested benefits.
The first requirement in paragraph 56(1)(u) of the Act is that the amount must be “social assistance”. The term “social assistance” is not defined in the Act but generally means aid provided by governments or government agencies, although it can also be provided by other organizations (such as a charity), on the basis of need. Based on the limited information provided, the assistance under the XXXXXXXXXX program would likely fall within the general meaning of social assistance.
The second requirement in paragraph 56(1)(u) of the Act is that the payment must be “made on the basis of a means, needs or income test.” We consider each one of these tests to be a financial test and they are described as:
1. An “income” test, which is a test based solely on the income of the applicant.
2. A “means” test, which is similar to an income test, but also takes into account the assets of the applicant.
3. A “needs” test takes into account the income, assets and financial needs of the applicant.
The information provided states that the eligibility criteria for the XXXXXXXXXX program would include an income test. Therefore, the assistance would likely be considered a social assistance payment included in the income of the recipient pursuant to paragraph 56(1)(u) of the Act. As noted above, this amount would be offset by a matching deduction under paragraph 110(1)(f) of the Act, so that there are no income tax implications related to this income inclusion other than it may affect certain income-tested benefits.
When an organization concludes that it has made social assistance payments as described in paragraph 56(1)(u) of the Act to an individual, subsection 233(1) of the Income Tax Regulations (Regulations) requires the organization that provided the social assistance to report the payment on Form T5007, Statement of Benefits (T5007) unless the payment is specifically excluded from this reporting requirement under paragraph 233(2) of the Regulations. These exceptions include a payment that:
(a) is in respect of medical expenses incurred by or on behalf of the payee;
(b) is in respect of child care expenses, within the meaning assigned by subsection 63(3) “child care expense”, incurred by or on behalf of the payee or a person related to the payee;
(c) is in respect of funeral expenses in respect of a person related to the payee;
(d) is in respect of legal expenses incurred by or on behalf of the payee or a person related to the payee;
(e) is in respect of job training or counselling of the payee or a person related to the payee;
(f) is paid in a particular year as a part of a series of payments, the total of which in the particular year does not exceed $500; or
(g) is not a part of a series of payments.
Since these monthly benefit payments do not appear to meet any of the exceptions listed under paragraph 233(2) of the Regulations, the benefit payments would be required to be reported on Form T5007.
We trust that these comments will be of assistance to you.
Yours truly,
Eric Wirag, CPA, CMA
Manager, Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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