4 November 1999 External T.I. 9925425 - SOCIAL ASSISTANCE

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: A person receives funds from the Ministry of Family Services (the B.C. Government) with respect to foster children for whom care has been arranged with others. The person, in turn, pays the caregiver a fee for caring for a foster child (or children) as well as other amounts for the care of the children. In relation to these circumstances, can the payment be considered to have been received "directly or indirectly" for the purposes of paragraph 81(1)(h) of the Act.

Position: Yes

Reasons: We have previously taken the position that a payment to a caregiver through a third party can be considered to have been received indirectly.

XXXXXXXXXX 1999-000497
M. Eisner
Attention: XXXXXXXXXX

November 4, 1999

Dear XXXXXXXXXX:

Re: Group or Foster Homes

This is in reply to your letter of June 10, 1999, concerning the above-noted subject. We also acknowledge our telephone conversation in which we obtained some clarification.

One of your clients has been entered into a contract with the Ministry of Family Services (the "Ministry") for the purposes of arranging a number of satellite group home facilities. Your client receives a fee for these services. In carrying on this business, your client also receives funds from the Ministry with respect to the foster children for whom care has been arranged and disburses funds to those who have agreed to care for them. Part of the funds are expended for the benefit of the children as described below and a part of the funds are paid to a caregiver as a fee for providing care.

The Ministry has prepared a budget with respect to the funds disbursed to each caregiver that are to be expended for the benefit of a foster child or foster children. The caregiver is required to account for all the funds. If there is a shortfall, it becomes the responsibility of the caregiver. If there are any surplus funds, they can only be expended by the caregiver for the benefit of the foster children.

While you believe that the fee paid to the caregiver would be non-taxable if only the caregiver and the Ministry were involved, you are concerned whether this is still the case even though it is your client who pays the fee to the caregiver.

Our Comments

In order to determine the tax consequences of your situation, it is necessary to review all the relevant facts and documentation. Such a review falls within the responsibility of your local Tax Services Office. However, we are providing you with the following general comments that are not binding on the Department.

As discussed with you, while paragraph 56(1)(u) of the Income Tax Act (the "Act") deals with social assistance payments that are required to be included in the income of the taxpayer or the taxpayer's spouse, the provision specifically excludes from its application income that is otherwise required to be included in the income of the taxpayer or the taxpayer's spouse. Where a fee is received for providing care to foster children, the consideration in relation to the exclusion would be whether the fee is business or employment income. However, the provisions of paragraph 81(1)(h) of the Act could be relevant as this provision sets out rules where certain income received by a caregiver is exempt.

Paragraph 81(1)(h) of the Act provides an exemption in respect of certain social assistance payments received by an individual. A social assistance payment will not be included in the income of an individual for income tax purposes, if all the following conditions are met:

• The payments must be ordinarily made on the basis of a means, needs or income test.
• The payments must be made under a program provided for by federal or provincial law.
• The payments must be received directly or indirectly by the individual for the benefit of another individual (the "cared-for individual").
• The cared-for individual cannot be the individual's spouse or related to the individual or the individual's spouse or related to the individual or the individual's spouse.
• No family allowance under the Family Allowances Act or any similar allowance provided for by provincial law can be payable in respect of the cared-for individual for the period for which the social assistance payment is made.
• The cared-for individual must live in the individual's principal place of residence.

The above exemption can apply whether the payments received are business or employment income to the caregiver.

Since, as indicated above, it is possible for a caregiver to receive social assistance payments "indirectly" for the benefit of another individual, a social assistance payment received by a caregiver through an intermediary will not, in and by itself, prevent the payment from being exempt under paragraph 81(1)(h) of the Act.

We trust that these comments will be of assistance.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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