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.
REVENU CANADA TAXATION MEMORANDUM
DATE June 8, 1987
TO- ASSESSING & ENQUIRIES DIRECTORATE Enquiries and Taxpayer Assistance Division
FROM- SMALL BUSINESS AND GENERAL DIVISION Mary Evans 957-2133
ATTENTION P. McNally
Director
RE: Composition of Social Assistance Payments ---------------------------------------------
This is in reply to your memorandum of March 5, 1987, a copy of which you sent to us on April 22, 1987, regarding the inclusion of social assistance payments in net income for purposes of calculating the child tax credit and the federal sales tax credit on Schedules 10 and 11 respectively, as specified in the 1986 T1 Guide. The inclusion of social assistance payments in net income is also relevant for personal exemption purposes if received by a dependant other than the spouse.
Until the social welfare agencies are able to implement a system of providing information for social assistance payments, which may not occur until the 1988 taxation year, the Department will have to rely on tax filers' best estimate of the amounts received.
As you are aware, the Department's position regarding the taxation of social assistance payments in the hands of recipients who are not themselves the individuals who meet the means, needs or income test is that while these payments are included in the income of the recipients pursuant to paragraph 56(1)(u) of the Act, only those who have the guardianship of the persons in need or are directly responsible for their personal welfare may claim the deduction under paragraph 110(1)(f) of the Act for the gross amount of the social assistance payments received. However, in this instance, the claiming of business expenses under the exception in paragraph 18(1)(a) of the Act in respect of such payments should be discouraged. Conversely, persons who receive social assistance payments for goods and services provided but do not have the guardianship of the persons in need or the responsibility for their personal welfare could not claim the deduction under paragraph 110(1)(f) of the Act but may claim relevant business expenses under the exception in paragraph 18(1)(a) of the Act since the payments received are regarded as income from a business pursuant to section 9 of the Act.
In view of the above, we comment as follows on the issues you have raised:
1. Social assistance payments received directly by persons who meet the means, needs or income test ------------------------------------------------
Until the matter of providing information by the social welfare agencies is resolved, the telex issued by Provincial and International Relations Division should be followed so that only social assistance received in the form of payments in the hands of the recipient will be relevant for the above-noted purposes. Therefore, rent paid directly to a landlord, food vouchers, and amounts for eye glasses, prescriptions, etc., paid directly to a supplier will not be included in the net income of the person in need on whose behalf they were paid. Subsection 56(2) of the Act does not apply in these instances to include these amounts in the income of the person in need since that person does not necessarily direct or concur with the social welfare agency that a payment be made for the benefit of the landlord, pharmacist, etc. The paying agency derives its authority to pay amounts "on behalf" of the person in need directly to third parties from the law of the province governing the particular program.
2. Social assistance payments received by persons who have the guardianship of the person in need or are directly responsible for their personal welfare --------------------------------------------------------
Since these persons are accorded the paragraphs 56(1)(u) and 110(1)(f) treatment, we advise that they are required to include social assistance payments received on behalf of persons in need in net income on Schedules 10 and 11 when claiming the child tax credit for their own children and the federal sales tax credit for themselves and their children. The Department of Finance has been made aware of this technical application of the law.
3. Social assistance payments received by goods and service providers who do not have the guardianship of persons in need or are not responsible for their personal welfare -------------------------------------------------------------------
As mentioned above, these persons should not be claiming the deduction under paragraph 110(1)(f) of the Act. Since social assistance payments will, in these cases, be treated as business income against which expenses are claimed, the net income reported by these individuals will include such payments for purposes of Schedules 10 and 11.
4. Social assistance and welfare payments received directly by Indian bands or chiefs residing on a reserve from a social welfare agency and distributed by them to Indians ------------------------------------------------------------
It is our opinion that, if such payments are made to an Indian band or chief to be paid to individuals already identified by the social welfare agency making the payments, the Indian band or chief is acting as agent for the social welfare agency making the payments. If the social welfare agency is not situated on a reserve, these payments should be included in net income by the eventual recipients for purposes of Schedules 10 and 11. If, on the other hand, a payment is made by a social welfare agency to an Indian band or chief to assist in the funding of a social assistance program of a band or reserve, payments received by an Indian under such a program would not be included in his or her income, provided of course that the Indian band or chief was resident on a reserve.
We trust this information will be of assistance.
Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
cc John Oulton Provincial and International Relations Division
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© Her Majesty the Queen in Right of Canada, 1987
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© Sa Majesté la Reine du Chef du Canada, 1987
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