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:
province intends to give payments to families of disabled children so that family may find own appropriate "associate family" to care for their child on (usually) a full-time basis for periods of time. If the payment is rec'd by the family, is it taxable to them? Is it taxable to the associate family when rec'd by them from the family? Any different if the funds are given to a non-profit organization who is responsible for either hiring or contracting with associate families?
Position:
no T5007 need be prepared for this type of payment. Payment to associate families will likely be taxable as it does not meet the requirement under 81(1)(h) that the payment be "for the benefit" the child (natural parents retain all responsibilities for child, per diem is to compensate for services provided in caring for child only). Will be taxed as either employment income or business income depending on the nature of the agreement between natural family and associate family. Same will be true for payments from non-profit organization to associate family.
Reasons:
962398
XXXXXXXXXX Sandra Short
Attention: XXXXXXXXXX
November 21, 1996
Dear Sirs:
Re: Payments for Associate Family Care
This is in reply to your letter of July 10, 1996, which asks that we advise on the taxability of payments under Alberta's care model for children with disabilities. We acknowledge receipt of additional information from Alberta Family and Social Services on September 23. We apologize for the delay in replying to you.
Further to our telephone conversation of September 9 (XXXXXXXXXX/Short), we understand that the care model under consideration is to assist families whose multiply disabled children cannot live with the natural family for a period of time. When a child cannot live with his or her natural family, that child will be placed in an Associate Family home. In most cases, this will be a full-time placement although there will be instances where care is shared. In either case, the natural family retains guardianship and all rights and responsibilities of parenting including the requirement to continue to provide food, clothing, medications, recreation and so forth, or to provide funds so that these items can be purchased. The Associate Family will be paid $80 to $100 dollars a day for the care provided to the child. The Associate Family is not expected to purchase anything for the child from these funds. The authority for the payment of these funds can be found in subsections 72(1) and (2) of the Alberta Child Welfare Act. The funds will either be paid directly to the parents who will then be responsible for finding an appropriate caregiver or Associate Family for their child or the funds will be paid to a not-for-profit agency which will in turn find Associate Families and then hire them as employees or contract with them as businesses.
When funds are paid directly to a parent or guardian of a disabled child to permit the family to purchase Associate Family care, there is no requirement for Alberta Family and Social Services to prepare an information return (T5007) reporting the amount of this payment. Any T5007 slips otherwise required to be prepared for social assistance payments should not include payments of the nature described by you under this care model. This is in accordance with subsection 233(2) of the Income Tax Regulations. We would point out, however, that a parent will be denied any medical expense tax credit which relates to the hiring of or contracting with a caregiver or associate family under this care model as the payments received by the parent or guardian would be viewed as reimbursements under subsection 118.2(3)(b) of the Income Tax Act.
On the basis of the draft model submitted, it is our opinion that amounts paid to the Associate Family by the natural family, or by a non-profit organization as the case may be, will be taxed in the hands of the recipient caregiver or Associate Family. Whether the income received by the caregiver or Associate Family is employment income or business income would depend on the nature of the relationship between the natural family and the Associate Family or between the not-for-profit organization and the Associate Family.
We considered whether these payments may be exempt under paragraph 81(1)(h) of the Act, which is the provision which exempts most foster care payments. It is our opinion that the payments will not qualify for this exemption because of the requirement in paragraph 81(1)(h) that the payment be received "directly or indirectly by the taxpayer for the benefit of another individual (other than the taxpayer's spouse or a person who is related to the taxpayer or related to the taxpayer's spouse)." It appears that the $80-$100 per day is not "for the benefit of" the child. Rather, it would seem that this per diem is primarily a payment made for services rendered for the care provided to the child and may be used primarily or entirely for the personal benefit of the caregiver or associate family. The natural family retains all legal and financial responsibility for the child (guardianship plus all costs for food, clothing, medication, recreation expenses and the other usual expenses associated with raising a child) and, therefore, the associate family is not required to pay for such expenses from the per diem amount received. In order for the payment to be exempt under paragraph 81(1)(h), we believe that it is necessary that the per diem payment be required to be used for the benefit of the disabled child.
We trust our comments will be of assistance to you.
Yours truly,
John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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