9 September 1992 Income Tax Severed Letter 922139A - Employment Income as Social Assistance

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.

922139
A. Humenuk
24(1) (613) 957-2134

Attention: 19(1)

September 9, 1992

Dear Sirs:

Re: Employees of Social Service Agencies

Your letter of June 26, 1992 addressed to the 24(1) District Office has been referred to us for reply.

Paragraph 81(1)(h) was added to the Act to clarify that certain payments to caregivers were exempt from taxation. In particular, this provision exempts from taxation

"a social assistance payment (other than a prescribed
payment) ordinarily made on the basis of a means,
needs or income test under a program provided for by an
Act of Parliament or a law of a province, to the extent
that it is received directly or indirectly by the
taxpayer for the benefit of another individual (other
than a person who is cohabiting in a conjugal
relationship with the taxpayer or who is related to the
taxpayer or to such a person) if

Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information

• i) no family allowance under the Family Allowances Act or any similar allowance under a law of a province that provides for payment of an allowance similar to the family allowance provided under that Act is payable in respect of the other individual for the period in respect of which the social assistance payment is made, and
• ii) the other individual resides in the taxpayer's principal place of residence, or the taxpayer's principal place of residence is maintained for the use as the residence of that other individual, throughout the period referred to in subparagraph (i);" where the payment is received by an individual other than a trust. It is your understanding that the employees of an organization similar to yours have been granted an exemption from taxation on the employment income they receive in connection with the children under their care by reason of this provision. Since it is also your understanding that the employees in that organization perform similar work under similar employment conditions as your employees, you have asked whether your employees can be granted a similar exemption.

24(1)

Please note that our comments are based on the information contained in your letter and sample agreements only and represent our considered opinion only. Such opinions are not binding on the Department.

You advise that your employees are residential caregivers who provide care in their homes for the children referred to you by 24(1) by reason of service contracts which exist between you and the Ministry. These caregivers are full time employees, and are governed by a written contract of employment. As employees, they receive salary and benefits commensurate with the services rendered as well as an allowance to cover the additional costs incurred for the maintenance of the children in their care. It is our understanding from our review of the contracts, that the employee agrees to bear all reasonable expenses relating to that child in exchange for the allowance.

Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information

This allowance is calculated based on the number of days each child is actually present in the employee's home and is expected to cover such additional costs as food, personal care, recreation, transportation, school supplies, minor clothing replacement and a personal allowance for the child as well as the extra costs of maintaining the employee's home due to the presence of the child (i.e increased utility costs, added depreciation on appliances, etc. but not mortgage payments).

In the case of salary and employment-related benefits, the amounts are not considered received "for the benefit of" the child. These are amounts to which the caregiver is entitled by reason of having performed the services required under the contract of employment. Accordingly, these payments are subject to tax under subsection 5(1) rather than being exempt under paragraph 81(1)(h) of the Act.

On the other hand, the allowance for the child's maintenance would appear to be made solely for the child's benefit and in fulfilment of your financial responsibility to care for that child (as opposed to being compensation for services rendered). Provided that the allowance is reasonable in relation to the actual expenses incurred on behalf of the child, it is our view that the allowance would not be considered to be on account of the employee's personal living expenses. Accordingly, such amount would not be included in the employee's income.

We caution you that the sample contracts submitted did not specify the daily rate of the allowance and as such, we are not in a position to judge whether the allowance is, in fact, reasonable in relation to the additional expenses incurred by the employee.

We regret any confusion that may have been caused by previous comments made by this Department on this subject.

Yours truly,

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

• c. c. 19(1) District Office c.c. Assessment of Returns Directorate c.c. Client Assistance Directorate

Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information