25 January 1995 External T.I. 9419595 - FOSTER CARE BY AN EMPLOYEE

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:

employment income for foster parenting & the applicable expenses

Position TAKEN:

employment income not exempt under 81(1)(h)
food, utilities, minor repairs would be deductible provided that the expense otherwise qualified and mortgage interest, taxes, insurance would not
basic tele not deductible but long distance charge might be
auto expenses would not include travel relating to household maintenance, including the acquistion of groceries

Reasons FOR POSITION TAKEN:

employment income is not a social assistance payment
general guidence given to determine reasonable expenses

A. Humenuk
XXXXXXXXXX			941959

January 25, 1995

Dear XXXXXXXXXX:

Re: Foster Care

We are replying to your letters of June 6, and December 15, 1994 concerning the taxation of the income earned by yourself as a emergency home placement worker. We apologize for the delay in our response.

In our telephone conversation of September 16, 1994 (XXXXXXXXXX/Humenuk), you stated that you are employed by XXXXXXXXXX to provide foster care in your home for difficult-to-handle children but that you do not have a written contract of employment. You receive $XXXXXXXXXX per day for the first child and $XXXXXXXXXX for each additional child of the same family as remuneration and receive no additional amount for the room and board of the children under your care. In the past year, you have had 3 children under your care in addition to your own children. It is your understanding that the amount paid to foster parents directly by the XXXXXXXXXX per day and that this amount is non-taxable.

You ask whether all or part of the amount received from XXXXXXXXXX can be excluded from your income on the basis that your duties and responsibilities are substantially the same as those of foster parents who receive tax exempt payments directly from the XXXXXXXXXX In the alternative, you ask whether you can deduct the cost of food, mortgage interest, property taxes, gas, electricity, water, telephone, house insurance, transportation expenses as well as the cost of repairing damages to your home caused by the foster children.

The tax consequences relating to your particular situation are best determined by the XXXXXXXXXX district taxation office after a thorough review of all relevant facts and documentation. Nevertheless we are prepared to offer you the following general comments which may be of assistance to you. Please note that the comments which follow are not binding on the department and are based on the assumption that, in the absence of a written contract of employment, the total amount received from your employer is employment income.

While amounts paid to foster parents for the care of children in their home are generally exempt by reason of paragraph 81(1)(h) of the Income Tax Act (the Act), this exemption does not apply to employment income received by an individual in his or her capacity as an employee. On the other hand, reasonable allowances received by an employee solely for the benefit of the cared-for individual (i.e. room and board) are excluded from income by reason of this provision.

In response to your question concerning employment expenses, we enclose Interpretation Bulletin IT-352R2 "Employees' Expenses Incurred in Performing the Duties of Office or Employment" which discusses the circumstances under which an employee may deduct reasonable costs incurred in connection with his or her home. As explained in paragraph 3 of that bulletin, mortgage interest, taxes and home insurance are not deductible to an employee (except for certain commissioned sales employees) even though the employee is required to use his or her home in the performance of the duties of employment. However provided that the other conditions described in paragraph 8(1)(i) of the Act are met, an employee who was required to provide food and lodging for a foster child would be entitled to a deduction for a reasonable amount for food, gas, electricity, water and minor repairs to the house. While the monthly charge for the basic use of the telephone would not be deductible, long distance charges specifically relating to the duties of employment would be where the employee was required to incur the cost and was not eligible for reimbursement.

The deductibility of transportation expenses is covered in the attached Interpretation Bulletin IT-522 "Vehicle and other Travelling Expenses Employees". In order to deduct automobile expenses, an employee must keep a record of the distance travelled in the course of earning employment income and the distance travelled for personal reasons in order to prorate the total expenses incurred in respect of that vehicle. In determining the distance travelled by automobile to earn employment income relating to the care of foster children, only those trips which can be directly related to the care of the foster child or children should be included. For example, travel relating to household maintenance, including the acquisition of groceries, would be considered personal travel.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch

Enclosure