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:
An individual received per diem amounts for caring for foster children. The children and the individual reside in the same residence. Are the amounts exempt under paragraph 81(1)(h) of the Income Tax Act?
Position TAKEN:
No, the amounts were not paid for the benefit of the children and the payments were not based on any means, needs or income test. The individual is free to use the amounts for her own personal benefit and is considered to be an employee.
Reasons FOR POSITION TAKEN:
The facts (including the fact that the agency rather than the individual paid for the costs of maintaining the children) support the above conclusion.
July 18, 1995
CPP/UI Eligibility and Business and General
Systems Division Division
P. Paquette M. Eisner
Acting Director (613) 957-8953
950716
Payments to Caregivers
We are replying to your memorandum of March 13, 1995 which concerns the above-noted subject. We apologize for the delay in replying.
In the situation we have been asked to consider, a foster parent (the Parent) entered into a "Memorandum of Agreement" (the Contract) with the XXXXXXXXXX.
Under the Contract, the Parent was required to care for foster children and was to be paid at the per diem rate of $XXXXXXXXXX. The Parent and the foster children reside in a residence leased or owned by the Agency. The Agency was required to pay for and maintain the residence and to pay expenses in respect of the foster children (e.g., food, personal and emergency clothing allowances, school and recreational allowances, etc.). It is also our understanding that the Agency is a non-profit organization which is regulated by and receives funding from the Province of XXXXXXXXXX.
The above situation, which was referred to your division by XXXXXXXXXX Tax Services, involves a consideration of paragraph 81(1)(h) of the Income Tax Act (the Act) which exempts social assistance payments made to a caregiver in certain circumstances. Following a review of the circumstances, your division concluded that the amounts paid in respect of the per diem rate (the Per Diem Amounts) constituted employment income and that they were not exempt under paragraph 81(1)(h) of the Income Tax Act (the Act). However, as similar income is currently being treated as being exempt by the Agency on the basis that it was advised to do so following the completion of a payroll audit in 1992 (the documentation has been destroyed), your division has requested our comments on the tax treatment of the Per Diem Amounts.
In relation to the above situation, paragraph 81(1)(h) of the Act refers in part to a "social assistance payment ... ordinarily made on the basis of a means, needs or income test ... to the extent it is received ... by the taxpayer for the benefit of another individual". (The word "ordinarily" is not considered to be relevant to the circumstances at hand as it was used in order to exclude amounts (often bed reservation fees) paid to individuals to maintain their residence available for use by a foster person, a payment which itself is not made on the basis of a means, needs or income test). In order for the Per Diem Amounts to have been paid to the Parent "for the benefit of" foster children for the purposes of paragraph 81(1)(h), it is our view that the Per Diem Amounts must have carried with them the stipulation that they be used for the benefit of the foster children. With respect to this condition, the Agency paid the expenses of the foster children and paid Per Diem Amounts to the Parent which the Parent could use solely for her own personal benefit. It is, accordingly, our view that this requirement was not satisfied. In addition, it is our view that the Per Diem Amounts were not made on the basis of a means, needs or income test. It follows that the Per Diem Amounts are not exempt under paragraph 81(1)(h) of the Act. In addition, these comments are consistent with circumstances where an individual is receiving employment income which the individual is free to use for his or her personal benefit. As explained below, it is our view that the Per Diem Amounts are in the nature of employment income.
For the purposes of determining whether the Diem Payments Amounts are in the nature of employment income, your division has indicated that the Parent was an employee of the Agency on the basis that the Parent was under the direction and control of the Agency. In relation to that position, term 5.02 a) of the Contract provides that the Agency has the right to set rules and give direction concerning the care and safety of the foster children and that the Agency is entitled to access in respect of the residence for the purposes of placement, discussion, and termination of placement regarding any a foster child. As a consequence of this term, we agree that the Agency was able to exercise the right of control over the Parent. We have also noted that XXXXXXXXXX Tax Services considered the four tests set out by the Federal Court of Appeal in Wiebe Door Services Ltd. V. MNR, (1986) 2 CTC 200. The four tests, which are i) control, ii) tools and equipment, iii) chance of profit/risk of loss, and iv) integration, were set out in relation to the issue of whether an individual was an independent contractor or an employee. In applying these tests, XXXXXXXXXX Tax Services concluded that the Parent was an employee. We agree with that conclusion with the result that the Per Diem Amounts are required to be reported by the Parent under subsection 5(1) of the Income Tax Act.
We also wish to mention that we have considered a letter dated December 3, 1989 which was included in the submission from your division. The letter was signed by the Honourable Michael Wilson who was the Minister of Finance at that time. The Agency contends that the letter indicates that the Per Diem Amounts are exempt. With respect to this contention, Mr. Wilson's letter addressed a problem related to a 1988 amendment to paragraph 56(1)(u) of the Act applicable to 1982 and subsequent years. As the problem involved social payments that might be regarded as being business income (the problem also resulted in the enactment of paragraph 81(1)(h) of the Act), we do not regard the comments in the letter as support for the view that the Per Diem Amount are exempt under subsection 81(1)(h).
As a final comment, we are mentioning that the above comments are consistent with the following comments set out in the memorandum of April 13, 1993 from Client Assistance Directorate to all field offices which was enclosed with your submission:
(a) "Paragraph 81(1)(h) exempts from the income of a taxpayer, certain social assistance payments ordinarily made on the basis of a means, needs, or income test provided certain conditions are met. For the exemption to apply, the payments must be:
* ...
* received directly or indirectly by the taxpayer for another individual's benefit": and
(b) "It is the Department's position, however, that salaries and employment-related benefits received by such an employee under a contract of employment are not tax exempt. These amounts are not considered to be received "for the benefit of the cared-for individual." Accordingly, these benefits are subject to tax under subsection 5(1) as income from as office and employment."
As a side comment, we have noted that term 3(e) of the Contract provides that the provision of lodging is deemed to be of no value to a foster parent. In relation to this term, paragraph 6(1)(a) of the Act requires that a benefit received by an employee in respect of lodging be included in the employee's income. As it is our view that the term has no effect on the application of the paragraph 6(1)(a) (i.e., parties to an agreement cannot contract out of the Act), it would be proper to determine whether the Parent has received a benefit from the Agency in respect of lodging.
If you require further technical assistance, we would be pleased to provide our views.
B.W. Dath
Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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