14 April 1992 Income Tax Severed Letter 9201275 - Social assistance and partnerships

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

SUBJECT: SOCIAL ASSISTANCE AND PARTNERSHIPS SECTION: 81(l)(h)]

April 14, 1992

XXX Business and General
Division
M. Eisner
(613) 957-2138
920127

Social Assistance Payments

A submission on behalf of XXX has recently been made to us in which matters were raised that relate to deductions disallowed by your office in respect of these two taxpayers and the subsequent filing of notices of objection. Pursuant to our telephone conversation on March 4, 1992 (XXX\Eisner), we are enclosing a copy of the submission for reply by your office and are providing the following comments.

We are also mentioning that since the XXX representative made the enclosed submission on the basis that someone at your office suggested he proceed in this manner, it may be an appropriate opportunity to remind your staff that advance income tax rulings are only given in respect of proposed transactions as indicated in Information Circular 70-6R2.

XXX

The Corporation is in the business of arranging for the care of foster children. In carrying on this business, the Corporation receives funds from the Ontario Ministry with respect to foster children for whom care has been arranged and disburses funds to those who have agreed to care for them. However, a portion of the funds received from the Ontario Ministry are retained for the payment of expenses incurred by the Corporation and the Corporation may earn a profit in carrying on its business. It is our understanding that the Corporation deals with the XXX at arm's length.

With respect to the above circumstances, the XXX in filing their income tax returns, claimed deductions under subparagraph 110(l)(f)(iii) of the Income Tax Act (the Act) on the basis that the funds received from the Corporation were described therein. The XXX District Taxation Office subsequently disallowed those claims on the basis that the social assistance payments from the Ontario Ministry were "received" for the purposes of subparagraph 110(1)(f) (iii) by the Corporation rather than by the XXX. As paragraph 81(l)(h) of the Act has been recently enacted into law (Bill C-18), XXX representative have requested consideration of whether the payments received by the XXX in partnership from the Corporation are exempt under this provision.

Our Comments

Paragraph 81(l)(h) of the Act exempts certain payments made to caregivers and foster adults. As this provision is applicable to 1982 and subsequent years, it must be considered with respect to the years in question (i.e., 1985 and subsequent years).

With respect to the circumstances provided to us, we are making a number of comments on paragraph 81(l)(h) in relation to the fact that a partnership exists.

In order for the relevant social assistance payments to qualify for the exemption under 81(1)(h) of the Act, one of the requirements that must be met, as stipulated in subparagraph (ii) of that provision, is that the individual being cared for must reside "...in the taxpayer's principal place of residence, or the taxpayer's principal place of residence is maintained for use as the residence of that other individual..." In the situation in which it is a partnership receiving the relevant social assistance payments, the question arises as to whether the cared-for individual can be said to be residing with the "taxpayer". Although subsection 96(1) of the Act sets out rules for the computation of a partner's income " ... as if the partnership were another person..", a partnership has no separate legal existence under the Act, and, in fact, it is the partners who are the taxpayers earning the income flowing through the partnership. Thus, it is our view that, for the purposes of paragraph 81(1)(h) of the Act, the "taxpayers" receiving the relevant social assistance payments are the partners in these circumstances. Accordingly, if the cared-for individuals reside with the partners of a partnership receiving the social assistance payments, such payments will be excluded from income under paragraph 81(1)(h) of the Act provided they otherwise qualify.

It should be noted that paragraph 18(1)(c) of the act prohibits the deduction of any outlays or expenses incurred to earn exempt income.

A further consideration is that paragraph 81(1)(h) refers to a "social assistance payment ... made on the basis of a means, needs or income test to the extent that it was received directly or indirectly by the taxpayer for the benefit of another". In view of the information provided to us, it appears to us that the payments received by the XXX from the Corporation can be regarded as having been indirectly received from the Ministry of Ontario on the basis that the source of funds for the payments can be regarded as being the payments received by the Corporation from the Ontario Ministry. For the purposes of the requirement in subparagraph 81(1)(h)(ii), the XXX representative has indicated that the foster children did reside with the XXX in their principal place of residence. However, XXX (the auditor who reviewed the partnership records) has indicated to us in a telephone conversation that the XXX District Office has not considered this requirement. It would accordingly appear that if your office is able to determine that this requirement has been satisfied, the payments in question would be exempt under paragraph 81(1)(h) if the related payments made by the Ontario Ministry were made on a means, needs or income test.

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental Affairs Branch

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