17 December 1998 External T.I. E9825265 - TAXATION OF PAYMENTS MADE BY REG. CHARITIES

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: Taxation of payments made to individuals by charitable organizations.

Position: Taxable as social assistance under paragraph 56(1)(u).

Reasons: Since the payments are made “on the basis of a means, needs or income test”, the payments made by the charitable organizations would be considered social assistance for purposes of paragraph 56(1)(u) of the Act. Amounts reportable on form T5007 subject to certain exemptions.

				5-982526
XXXXXXXXXX 			Karen Power, CA
(613) 957-8953
Attention:  XXXXXXXXXX 

December 17, 1998

Dear XXXXXXXXXX:

Re: Payments made by Charitable Foundations for the “Relief of Poverty”

We are writing in reply to your letter of September 28, 1998 concerning the taxation of payments received by individuals for the relief of poverty from a registered charitable foundation. Furthermore, you have requested our views on whether such payments must be reported by the charitable foundation on a T5007 supplementary slip or any other form. We also acknowledge our telephone conversation (XXXXXXXXXX/Power) of October 13, 1998, in which we obtained clarification of the circumstances in the situation.

You describe a situation in which an individual receives, in most cases, a one-time payment from a charitable organization. The payment would be made pursuant to a needs test.

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 not binding on the Department.

Paragraph 56(1)(u) of the Income Tax Act (the “Act”) includes in income “a social assistance payment made on the basis of a means, needs or income test and received in the year...”. Payments included under paragraph 56(1)(u) of the Act are deductible in computing taxable income in accordance with paragraph 110(1)(f) of the Act.

Since the term "social assistance" is not defined in the Act, one must look to the meaning of the term as it is ordinarily defined and understood, in order to determine whether paragraph 56(1)(u) of the Act applies in a particular situation. "Social assistance" or "social security" is defined in the Oxford English Dictionary (2nd Ed.) as a system whereby the state provides financial assistance for those citizens whose income is inadequate or non-existent owing to disability, unemployment, old age, etc.. Section 18 of the Federal Provincial Fiscal Arrangements Act and a number of other Acts support the view that “aid made in any form to or in respect of a person in need” should be quantified as social assistance. In our view, social assistance payments are not limited to payments made by governments.

In our view, since the payments described above are made “on the basis of a means, needs or income test”, the payments made by the charitable organizations would be considered social assistance for purposes of paragraph 56(1)(u) of the Act.

Since the charitable organizations are each considered to be a person who makes a payment described in paragraph 56(1)(u) of the Act, for purposes of subsection 233(1) of the Income Tax Regulations (the “Regulations”), each would be responsible for issuing any required T5007 forms. As you have indicated subsection 233(2) of the Regulations provides situations in which the prescribed form (T5007) is not required. Specifically, paragraph 233(2)(f) exempts payments paid in a particular year as part of a series of payments, the total of which does not exceed $500, and paragraph 233(2)(g) exempts a payment which is not part of a series of payments. Based on our understanding of your situation, most of the payments made by the charitable organizations would fall within the exemptions described above and the prescribed form would not be required.

We trust our comments will be of assistance to you.

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