27 March 2012 External T.I. 2011-0414651E5 - Payments for in-home care of disabled persons

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. Do payments received by an individual for the in-home care of a disabled child need to be included in that individual's income?
2. If so, is the payments business income?

Position: Question of fact

Reasons: 1. Requirements of 56(1)(u). 2. Insufficient information provided to determine if business income.

XXXXXXXXXX 						2011-041465
							George A. Robertson, CMA

March 27, 2012

Dear XXXXXXXXXX :

Re: Income Inclusion for Payment for In-Home Care of Relative

This is in response to your request of July 21, 2011 on our views on the inclusion in income of payments for the in-home care of a relative.

In the situation described:

• Funds are provided by the XXXXXXXXXX (the Program) for the in-home care of your disabled child.
• All funds are to be used to pay a home care worker for services provided. Any funds not used are to be returned.
• You have been instructed and have issued T4's and summaries for the payments to the home care worker(s).

Our comments:

Paragraph 56(1)(u) of the Income Tax Act states "a social assistance payment made on the basis of means, needs, or income test and received in the year..." is included in income. The first requirement is that the amount must be "social assistance", which 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.

Upon determining that a payment is social assistance, the second requirement of whether the payment is made on "the basis of a means, needs or income test" must be confirmed. There are three main types of financial eligibility tests used in Canadian financial assistance programs:

• The needs test: takes into account assets, income, and needs, as defined in provincial legislation (i.e., social assistance programs);
• The income test: based solely on the income of each applicant; benefit levels set by legislation, but not based on specific needs (e.g., federal Guaranteed Income Supplement for needy seniors); and
• The means test: same as income tested program, but also includes an asset test

If both conditions are met, the payments would generally be taxable under paragraph 56(1)(u) of the Act. However, paragraph 110(1)(f) of the Act allows for the deduction from income, any social assistance payment received by a taxpayer on the basis of a means, needs, or income test and included in income under paragraph 56(1)(u) of the Act. The Program's web site [XXXXXXXXXX] shows one of the responsibilities of the Regional Health Authorities is, "XXXXXXXXXX" [Emphasis added].

While a question of fact, it appears that the financial assistance provided through the Program could be social assistance for the purposes of paragraph 56(1)(u) and paragraph 110(1)(f) of the Act.

If it is considered social assistance, subsection 233(1) of the Income Tax 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 slip T5007 Statement of Benefits slip. Subsection 233(2) of the Regulations lists certain exceptions from these reporting requirements. Additional information on this topic can be obtained from Guide T4115 T5007 Guide - Return of Benefits.

In response to your question about business income, generally certain payments may be income from a business or property under section 9 of the Act (in which case, an individual would be entitled to deduct the expenses incurred to earn that business income) or employment income under section 5 of the Act. Unless the facts and circumstances indicate that the individual is providing the support to the cared-for-individual as part of a business carried on by the individual with a reasonable degree of commerciality, then it is unlikely that the payments would be considered business income. In determining whether an individual is employed or self-employed, CRA evaluates the working relationship between the payor and the worker. Many factors are considered including the degree of control held by the payor over the worker, whether the worker provides his or her own tools, and the degree of the worker's financial risk. The CRA publication RC4110 Employee or Self-employed further elaborates on the criteria. No one criterion determines whether a person is an employee or independent contractor, all the criteria are considered relevant. The CRA publication RC4120 Employer's Guide - Filing the T4 Slip and Summary may be of assistance.

Your enquiry concerns an actual situation involving questions of fact that should be dealt with by your local Tax Services Office (TSO). We offer general views regarding the application of the relevant income tax legislation. If you wish to have the CRA review
your actual situation, you may wish to submit all the relevant information and documentation to the TSO serving your area, a list is available on the "Contact Us" page on the CRA Web site at www.cra.gc.ca

Yours truly,

Sharmini Ratnasingham
Assistant Director
Financial Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch