9 August 1994 Internal T.I. 9414986 - SOCIAL INSURANCE NUMBER REQUIREMENT

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.

Principal Issues:

Should T5 showing investment income resulting from investment of family allowance payments and the new child tax benefit contain the parents SIN or that of the child, if the child has one to provide?

Position TAKEN:

The SIN number of the person whose funds are being invested should be provided. If that person is a child then the SIN need not be provided unless the income exceeds $2500.

Reasons FOR POSITION TAKEN:

Section 237 requires SIN to be provided but IC 82-2R2 sets out administrative practice where owner of invested funds is a child.

			August 9, 1994

T2 and T3 Programs Division Head Office
Information Returns Section Rulings Directorate
Meredith Staples, Chief J.A. Szeszycki
(613) 957-8953
941498

Family Allowance/Child Tax Benefit Annuities

This is in reply to your memorandum of June 6, 1994 in which you requested our views as to the requirement on the part of financial institutions to issue T5 information returns containing the social insurance number of the parents of the children to whom the investment income is attributed for tax purposes.

Prior to its discontinuance after 1992, the family allowance was an amount received by the parent and was required to be included in the income of the parent for tax purposes, in accordance with subsection 56(5) of the Income Tax Act (the Act). The child tax benefit is deemed, under section 122.61 of the Act, to be an overpayment of tax by the parent taxpayer and as such is refunded to the tax paying parent. Both the former family allowance and the new child tax benefit are amounts to which the parent is entitled, for disposition at his or her discretion.

When the amounts received are blended with other source income and used for investment purposes the income generated by those investments rightfully belongs to the investing parent and is required to be included in the parent's income for tax purposes. While it may be argued that the parent may have, effectively, transferred the amount of the family allowance to the child subsection 74.1(2) attributes any income earned on property transferred to a minor back to the transferor. Paragraph 16(b) of Information Circular 79-9R clearly sets out that principle in the case of the investment of family allowance payments. A longstanding exception to that basic principle is explained in paragraph 16(a) and the remainder of paragraph 16(b), in which it is stated that where the family allowance received is clearly segregated from other source income received by the parent and that segregated amount is placed on deposit in a separate bank account in the child's name, or otherwise invested for the benefit of the child, the income generated from that investment will be treated as income of the child and not of the parent. While this treatment has no technical support in tax law it is a longstanding administrative practice of the Department. The type of investment acquired with the segregated funds is not the relevant issue. To obtain the desired tax treatment the source of funds for the investment must clearly be traceable to the family allowance receipts.

The same general principles apply to the child tax benefit received by the parent. The benefit itself belongs to the parent. If the parent chooses to use the funds, blended with other general funds, to acquire an investment in the name of the child the investment still belongs to the investing parent since the source of funds is that of the parent and, consequently, the income earned is that of the parent. Where the property, either the child tax benefit received or the investment acquired, is transferred to the child (a minor) the income subsequently earned does not attribute back to the parent due to the specific exception to the attribution rule noted in subsection 74.1(2) with respect to amounts received as a result of the operation of subsection 122.61(1) of the Act. Consequently, the treatment of income earned on invested child tax benefits is similar to the treatment accorded invested family allowance payments.

In short, where it can be shown that separate accounts have been established for the child to which the family allowance and the child tax benefit payments were deposited, and perhaps used to acquire investments, it can be concluded that these amounts were effectively transferred to the minor child. The attribution rules and their administrative and, in the case of the child tax benefit, legislated exceptions result in the income from these investments remaining in the hands of the minor child.

Subsection 237(1) of the Act sets out the requirement that every individual, including a child, in respect of whom an information return is to be made shall apply to the Minister of National Health and Welfare for the assignment of a social insurance number and is required to provide that number to any person obligated to make an information return that requires a social insurance number. Information Circular 82-2R2 describes the rules and administrative practices related to the social insurance number legislation. Paragraph 2 of the circular and paragraph 8 in more detail, under the heading "Special Cases", deals with the situation at issue. Where the individual whose funds are deposited in the account or whose funds are used to acquire an investment is under the age of 18, a minor, such an individual is not required to provide a social insurance number unless the income being reported exceeds $2,500. Consequently, while a general requirement for the provision of social insurance numbers exists there are clearly situations where the Department does not require a social insurance number and therefore the financial institution should not insist on one being provided. The use of the social insurance number of the parent as a substitute is the incorrect procedure to follow in cases where the income belongs to the child.

It is our understanding that it is not uncommon for parents setting up accounts for their children, or acquiring investments with funds belonging to their children, to provide their own social insurance number when "routinely" requested by the financial institution, without realizing that there may not have been a requirement for them to do so. This being the case, the Department will continue to receive T5 information with the wrong social insurance number associated with it in which case automatic reassessments of unreported investment income based on the reported social insurance number will continue to include errors.

B.W. Dath
Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch