9 June 1997 External T.I. 9707685 - INDIRECT RECEIPT OF FUNDS

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:

Whether the income for providing respite care to mentally handicapped individuals will remain exempt from tax under paragraph 81(1)(h) now that it is paid by the Ministry of Social Services to an Indian Band who then contracts with, and pays, the recipient.

Position:

The change of payor should not affect the status of the payment to the recipient as long as the other conditions of paragraph 81(1)(h) continue to be met.

Reasons:

Paragraph 81(1)(h) provides for the indirect receipt of funds.

	                               				970768
XXXXXXXXXX                   Roxane Brazeau-LeBlond, CA

June 9, 1997

Dear Sir:

Re: Tax exemption for payments for providing respite care

This is in response to your letter of March 13, 1997, in which you requested our views on the tax treatment of payments received for providing respite care for the mentally handicapped.

We understand that your wife has been receiving such payments which, when paid by the Ministry of Social Services, were exempt from tax. However, recently, the Ministry of Social Services has handed over the administration of this program to the XXXXXXXXXX (the "Band"). Although the funding for this program still originates from the Ministry, your wife is now paid by the Band.

Question

You would like to know whether these payments will remain exempt from tax now that they are paid by the Band.

Our Comments

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R3 dated December 30, 1996. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments which are of a general nature and are not binding on the Department.

Generally, the exclusion from income contained in paragraph 81(1)(h) of the Income Tax Act (the "Act") applies to a "social assistance 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." Under paragraph 81(1)(h) of the Act, payments to an individual, other than a trust, for the care of another person will generally be excluded from income when:

1.the cared-for person is unrelated to the individual,

2.the cared-for person is living in the individual's principal place of residence, or the individual's principal place of residence is maintained for use as the residence of the cared-for person,

3.the payment is made under a social assistance program of a province or of Canada, and

4.no family allowance or similar allowance is payable in respect of the cared-for person for the period of time in respect of which the social assistance payment is being made.

Paragraph 81(1)(h) provides for the indirect receipt of the social assistance payment. The fact that an otherwise qualifying payment is made first to an intermediary should not, in and by itself, adversely affect a qualifying payment. However, the agreements and contracts between the payor, the intermediary and the recipient would be determinative to resolving whether the payment can be considered to have been "received...indirectly by the taxpayer."

Although the social assistance payments themselves may be excluded from income under paragraph 81(1)(h) of the Act, the exemption from tax does not apply to salary or wages paid under a contract of employment, even if the duties of employment are performed in an employee's residence. It is a question of fact as to whether a caregiver is an employee or an independent contractor. The determination of an individual's employment status is the responsibility of the Department's tax services office serving the geographical location of the payor. The Revenue Collections Division of your local tax services office is prepared to review the facts and circumstances, including the contract under which payments are made to the caregiver, in order to determine the caregiver's status for the purpose of the Canada Pension Plan and Unemployment Insurance Act. The status so determined applies for the purpose of the Income Tax Act as well.

We trust that these comments will be of assistance.

Yours truly,

R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch