22 November 1989 External T.I. 74135 F - Exempt Income - "Home Care" Benefits under Veterans Independence Program

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.

Subject: Exempt Income - Paragraph 81(1)(d)

This is in reply to your memorandum of July 17, 1989 concerning "home care" benefits made available under the Veterans Independence Program ("VIP") administered by the Department of Veterans Affairs.

You state that these payments are exempt income under paragraph 81(1)(d) of the Income Tax Act (the "Act").  However, as we understand it, in many cases VIP payments in respect of services provided to an eligible client are made directly to the service provider (homemaker, nurse, etc.).  You have received an inquiry from the Department of Finance as to whether we would consider VIP payments made directly to service providers to be exempt income in their hands.

Assuming that these payments are, in fact, exempt under paragraph 81(1)(d) of the Act, it is our opinion that they would not be exempt in the hands of a serviced provider even where paid directly to the service provider.

21(1)(b)

Prior to the recent amendments to the Act, our position had been that social assistance payments made directly to foster parents and group home operators retained their character as social assistance payments and were included in income under paragraph 56(1)(u) of the Act, with a corresponding deduction under subparagraph 110(1)(f)(iii). This was also our position prior to 1982, when social assistance payments were not included in income at all by virtue of former paragraph 81(1)(j) of the Act.  Our rationale was that paragraph did not impose conditions on the individual receiving the payment in order for it to be excluded from income; rather, the conditions to so qualify were imposed on the payment itself. If the payment met the conditions of paragraph 81(1)(j) of the Act, it was excluded from income regardless of who the recipient was.

21(1)(b)

There is a difference, though, in the wording used in paragraph 81(1)(d) and former paragraph 81(1)(j) and paragraph 56(1)(u) of the Act.  Former paragraph 81(1)(j) of the Act referred to a social assistance payment "made".  It made no reference at all to the receipt of the payment.  While paragraph 56(1)(u) of the Act has added the word "received", it has nevertheless not deleted the word "made".  Thus, the nature of the payment has to be determined at the time it is made.  Paragraph 81(1)(d) of the Act, however, makes no reference to the making of the payment; rather, it is the receipt that is the determining factor.  Therefore, this appears to be a case where the doctrine of constructible receipt could be applied, as set out in the jurisprudence and possibly also under subsection 56(2) of the Act.

With reference to the jurisprudence, the courts have said in cases such as The Queen v. Kurisko 88 DTC 6437 that the word "received" does not necessarily require physical receipt or deposit in a taxpayer's bank account.  It is sufficient, for example for purposes of section 5 of the Act, that the amount of salary is paid by the employer either to the employee himself or to his benefit, or that it was handed over to a third party under a federal or provincial statute.  It is a necessary corollary of the doctrine of constructive receipt that, when it applies, the actual recipient must treat the payment as if it had come from the person who is constructively deemed to have received it.  While constructive receipt is usually applied in the context of determining whether an amount is to be included in the income of the deemed recipient , we see no reason why it need be restricted to such cases.  Accordingly, service providers who receive VIP payments directly form the Department of Veterans Affairs must treat the payments for tax purposes as if they had first been paid to the clients. 

Some support, although limited, for constructive receipt in this context is provided by subsection 56(2) of the Act.  It states that "a payment or transfer of property made pursuant to the direction of, or with the concurrence of, a taxpayer to some other person or as a benefit that the taxpayer desired to have conferred on the other person ... shall be included in computing the taxpayer's income to the extent that it would be if the payment or transfer had been made to him".  Since this provision does not specifically address the meaning of "received", we prefer to rely on the jurisprudence.

Paragraph 81(1)(d) of the Act includes the expression "is subject to".  This raises the question of whether constructive receipt can be applied when interpreting this expression.  Our answer is that the Veterans Care Regulations authorizing the VIP payments state that "the Minister may authorize payment ... to or on behalf of the client in respect of the services or chronic care described in these Regulations".  The definition of "client" in the regulations makes it clear that a client is not the service provider but rather the person who is eligible to receive the service provided.

21(1)(b)

Another argument that can be made is that in the hands of the service provider, the payments he receives are not received under or subject to the Veterans Care Regulations but rather are received under or subject to the contract (whether written or oral) between the client and the service provider.  It is this contract that is the basis of the provision of the services by the service provider to the client and the basis for the service provider's compensation. 21(1)(b)

In summary, our opinion is that the Department is entitled to take the position that service providers cannot VIP payments from their income by relying on paragraph 81(1)(d) of the Act.

M.G. HiltzA/Director GeneralSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch