20 December 1999 Income Tax Severed Letter 9932686 - SOCIAL ASSISTANCE PAYMENTS

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: Under the Child in the Home of a Relative Program of BC, payments are made to a caregiver who is also a "relative" of the child. The payments are income or assistance tested with respect to the child and not the caregiver.

Issue (1) Should the T5007 slips be made in the name of the child or in the name of the caregiver?

Issue (2) Is there authority to require T5007 slips for CIHR payments if they are exempt from taxation by virtue of ITA 81(1)(h)?

Position:

Issue (1) T5007 slips made in the name of the recipient of the CIHR payments.

Issue (2). Yes.

Reasons:

Issue (1) The slips are made in the name of the caregiver who receives the CIHR payments. Reg. 233(1) requires slips for payments described in ITA 56(1)(u). Both ITA 56(1)(u) and ITA 81(1)(h) are worded with reference to the recipient of the social assistance payments.

Issue (2) Reg. 233(1) requires slips for payments described in ITA 56(1)(u), meaning that there is no requirement that the payments be included in income under that paragraph but simply that they meet the description in it.

DATE  December 20, 1999
TO    Business Returns and Payments Processing Directorate              HEADQUARTERS
  A   Business Returns Processing Division                              S. Parnanzone
B. Holloway                                           (613) 957-9232
      Director

      Attention:  Joe Hartwick
ÀÄ                                                          ÄÙ    FILE   993268

SUBJECT: Social assistance payments and T5007 slips

This is in reply to your memorandum of December 14, 1999, in which you asked whether the T5007 slip should be made in the name of the child or in the name of the adult caregiver with respect to payments made under the Child in the Home of a Relative Program (CIHR) of the Province of British Columbia.

In a memorandum dated April 30, 1993, the Provincial and International Division advised the Information Returns Section that since the caregiver is the recipient of the social assistance payments made under the CIHR, the T5007 slip was to be issued to the caregiver who receives the payments for the benefit of the child. Under the CIHR, the caregiver is a child's relative who is not income or assistance tested with respect to the payments made for the benefit of the child. However, the payments are based on a means, needs and income test of the child.

As a result of our telephone conversation with Mr. Hartwick of your office, it is our understanding that the practice of the Canada Customs and Revenue Agency (Agency) is to let the payor determine whether particular payments qualify as social assistance and that the Province of BC has concluded that the payments under the CIHR qualify for inclusion in income under paragraph 56(1)(u) of the Income Tax Act (Act). Mr. Hartwick also informed us that T5007 slips are presently filed for all types of social assistance payments. XXXXXXXXXX Accordingly, he solicited our comments on the application of paragraphs 56(1)(u) and 81(1)(h) of the Act.

Our Comments

With respect to the CIHR payments there are two issues. The first is whether such payments qualify for inclusion in net income under paragraph 56(1)(u) of the Act (such income inclusion being offset by a deduction in computing taxable income under paragraph 110(1)(f) of the Act) or for an exclusion from net income by virtue of paragraph 81(1)(h) of the Act.

The second issue is whether section 233 of the Income Tax Regulations (Regulations), which addresses the preparation of information returns (i.e., T5007 slips) for social assistance payments, apply equally to amounts included in income by virtue of paragraph 56(1)(u) of the Act as well as to amounts excluded from income by virtue of paragraph 81(1)(h) of the Act.

With respect to the first issue, since we have not been provided with sufficient details about the CHIR program, we are unable to form a definitive opinion. Nevertheless, based on the limited facts, the CIHR payments appear to qualify as social assistance payments because they are based on a means, needs or income test. Since the CIHR payments are social assistance payments, they should be included in net income pursuant to paragraph 56(1)(u) of the Act (subject to an exclusion from taxable income by virtue of paragraph 110(1)(f) of the Act), provided they are not eligible for an outright exclusion from income by virtue of paragraph 81(1)(h) of the Act, as explained below.

Paragraph 56(1)(u) provides that social assistance payments based on a means, needs or income test should be included in computing the income of the recipient taxpayer. However, if the taxpayer resides with a spouse with a higher income, the social assistance payments are reported by the spouse. Paragraph 56(1)(u) does not apply if the social assistance payments are otherwise included in the income of the receiving taxpayer or the spouse by virtue of another tax provision.

In our view, social assistance payments made to a recipient taxpayer may qualify for income inclusion under paragraph 56(1)(u) even though the means, needs or income test is not with reference to the taxpayer receiving the payment. Furthermore, where social assistance payments are required to be included in income, they are included in the income of the recipient taxpayer, or the taxpayer's spouse with the higher income, even though the social assistance payments may be for the benefit of, say, the taxpayer's children. In this regard, please refer to the extended meaning of child in subsection 252 (1) of the Act.

Although social assistance payments included in income by virtue of paragraph 56(1)(u) may qualify for deduction in computing taxable income pursuant to paragraph 110(1)(f), the fact that they are part of the net income may affect claims for tax credits made by the recipient taxpayer or the taxpayer's spouse in whose net income the social assistance payments are included.

In certain situations, paragraph 81(1)(h) may apply to exclude from income certain payments to which paragraph 56(1)(u) might otherwise apply. Generally, paragraph 81(1)(h) provides that a taxpayer does not include in income social assistance payments received for the benefit of another individual, provided:

(a) no family allowance is payable in respect of the other individual, and

(b) the other individual resides with the taxpayer or the taxpayer's principal residence is maintained for use as the residence of the other individual.

Furthermore, the income exclusion under paragraph 81(1)(h) does not apply if the other individual, for whose benefit the social assistance payments are made to a taxpayer, is the taxpayer's spouse or is related to either the taxpayer or the taxpayer's spouse.

Pursuant to paragraph 251(2)(a) of the Act, two individuals are considered related if they are connected by blood, marriage or adoption. Please refer to Interpretation Bulletin IT-419R, Meaning of arm's length, for a discussion on the meaning of related persons. We would observe that certain individuals that in common parlance are regarded as 'relatives' are not related for tax purposes. For example, as explained in paragraph 8 of the bulletin, an individual's uncle, aunt, niece or nephew are not related by blood, marriage or adoption to the individual unless he or she is also the individual's child or parent because of the extended meaning of child.

The CIHR payments received by a 'relative' for the benefit of a child may qualify for exclusion from income under paragraph 81(1)(h) if, amongst the other conditions of this paragraph, the 'relative' and the child are considered not related for tax purposes and no family allowance is payable in respect of the child.

As regards the second issue dealing with the filing of T5007 slips, we note that subsection 233(1) of the Regulations requires the filing of information returns for social assistance payments described in paragraph 56(1)(u) of the Act, excluding payments listed in subsection 233(2) of the Regulations. The wording of subsection 233(1) of the Regulations is wide in meaning in that it encompasses all payments described in paragraph 56(1)(u), whether they are included in income by virtue of paragraph 56(1)(u) or are not so included because they are not taxable by virtue of paragraph 81(1)(h). Accordingly, subsection 233(1) of the Regulations contains the authority for the filing of T5007 slips for social assistance payments made under the CIHR program even if the payments, as discussed above, may be excluded from income by virtue of paragraph 81(1)(h) of the Act provided such payments can be regarded as payments described in paragraph 56(1)(u).

In our view, the T5007 slips should be made out to the taxpayer receiving the social assistance payments. In fact, both paragraphs 56(1)(u) and 81(1)(h) of the Act are worded with reference to the recipient of the payments.

XXXXXXXXXX

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

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