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.
Principal Issues: 1. Is the recipient of assistance required to include an amount received in net income on his/her income tax return?
2. Is the payer required to issue a T5007 slip to each recipient of assistance from a designated fund?
Position: 1. Yes to the extent that a payment is a social assistance payment and is made on the basis of a means, needs or income test.
2. It is a question of fact.
Reasons: Paragraph 56(1)(u)
XXXXXXXXXX .
2011-041870
Ananthy Mahendran
March 20, 2012
Dear XXXXXXXXXX :
Re: Technical Interpretation of Paragraph 56(1)(u) of the Income Tax Act
We are writing in response to your correspondence dated August 19, 2011, concerning the reporting requirements under the Income Tax Act (the "Act") for financial assistance provided by a charitable organization ("the organization") from the XXXXXXXXXX ("the Fund").
Briefly, as we understand it, an organization operates a Fund from which it provides assistance to needy members and occasionally to non-members and other organizations on a "needs and means" basis. Assistance is given to those who are deemed to require it in the form of either a single lump-sum payment or a number of payments covering a longer period of time. Funds are contributed to the Fund by the congregation by means of cash collections for which no charitable receipts are provided, or by cheque for which the donor is given an official charitable donation receipt.
Specifically, you would like to know:
1. Is the recipient of assistance required to include the amount received in net income on his/her income tax return?
2. Is the organization required to issue a T5007 slip to each recipient of assistance from the Fund?
Reporting requirements to the recipient of social assistance:
Paragraph 56(1)(u) of the Act includes social assistance payments that are made on the basis of a means, needs, or income test and received in the year in a taxpayer's income except to the extent that such payments are otherwise required to be included in the taxpayer's income or the income of the taxpayer's spouse or common-law partner. However, amounts included in a taxpayer's income under paragraph 56(1)(u) of the Act are offset by a corresponding deduction under paragraph 110(1)(f) of the Act, such that there are no accompanying income tax implications related to this income inclusion other than it may possibly affect certain income-tested programs.
The first requirement in paragraph 56(1)(u) of the Act is that the amount must be a "social assistance" payment. The term "social assistance" is not defined in the Act. Social assistance generally means a system whereby financial assistance is extended to those individuals whose income is inadequate or non-existent owing to disability, unemployment, old age, etc. Such assistance may be provided under the auspices of a private organization as well as a government organization.
The second requirement in paragraph 56(1)(u) of the Act is that the payment must be "made on the basis of a means, needs or income test". In this regard, there are three main types of financial eligibility tests used in Canadian financial assistance programs. They are:
- the needs test: takes into account the assets, income, and needs, as defined in provincial legislation of the applicant;
- the income test: based solely on the income of each applicant; benefit levels set by legislation, but not based on specific needs; and
- the means test: same as an income-tested program, but also includes an asset test.
Where these two requirements are met, paragraph 56(1)(u) of the Act will apply to any payments of social assistance received in the year, regardless of who the payer is. Paragraph 110(1)(f) of the Act allows a taxpayer to deduct, in computing taxable income for a taxation year, any social assistance payment made on the basis of a means, needs or income test and included in computing the taxpayer's income for the taxation year by virtue of clause 56(1)(a)(i)(A) or paragraph 56(1)(u) of the Act.
In conclusion, to the extent that a payment is a "social assistance" payment and is "made on the basis of a means, needs or income test", the recipient of such assistance is required to include the amount received in his or her (net) income pursuant to paragraph 56(1)(u) of the Act.
Reporting requirements to the payer of social assistance:
Subsection 233(1) of the Income Tax Regulations (the "Regulations") requires every person who makes a payment described in paragraph 56(1)(u) of the Act to file an information return in prescribed form in respect of such payment. Social assistance payments are generally reported on a T5007 slip. However, subsection 233(2) of the Regulations lists certain exceptions from these reporting requirements.
As described in subsection 233(2) of the Regulations, the following types of payments do not have to be reported on a T5007 slip:
A payment that:
(a) is in respect of medical expenses incurred by or on behalf of the payee;
(b) is in respect of child care expenses, as defined in subsection 63(3) of the Act, incurred by or on behalf of the payee or a person related to the payee;
(c) is in respect of funeral expenses in respect of a person related to the payee;
(d) is in respect of legal expenses incurred by or on behalf of the payee or a person related to the payee;
(e) is in respect of job training or counselling of the payee or a person related to the payee;
(f) is paid in a particular year as a part of a series of payments, the total of which in the particular year does not exceed $500; or
(g) is not a part of a series of payments.
In conclusion, to the extent that a payment is a social assistance payment and is made on the basis of a means, needs or income test, the payer is required to prepare the information return (T5007) prescribed in subsection 233(1) of the Regulations and issue a T5007 slip to the recipient.
Additional information on this topic can be obtained from the T5007 Guide - Return of Benefits (T4115).
We trust that our comments will be of assistance.
Yours truly,
Sharmini Ratnasingham
Assistant Director
Financial Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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