2 July 2010 Ministerial Correspondence 2010-0359971M4 - 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.

Principal Issues: Does paragraph 81(1)(h) of the Act apply to the payments received from the Agency?

Position: No not in this case.

Reasons: The care recipient can not be related to the caregiver.

July 2, 2010

XXXXXXXXXX

Dear XXXXXXXXXX :

The office of the Honourable James M. Flaherty, Minister of Finance, forwarded to me a copy of your correspondence asking whether paragraph 81(1)(h) of the Income Tax Act applies to the payments you received from the XXXXXXXXXX (XXXXXXXXXX ), a Crown agency. I apologize for this delay in replying.

According to your letter, after a mediated settlement, the XXXXXXXXXX hired you as a home sharing provider and primary caregiver for your daughter, and paid you $XXXXXXXXXX .

The Canada Revenue Agency (CRA) can determine how the payments you receive should be taxed only after reviewing all the relevant documentation and agreements related to you, your daughter, and the XXXXXXXXXX . Therefore, I can only offer the following general comments.

Paragraph 81(1)(h) of the Income Tax Act allows social assistance payments to an individual caregiver (the caregiver) for the benefit of an individual (the care recipient) under that caregiver's care to be excluded in computing the income of the caregiver. The care recipient can be either a child or an adult. The amount the caregiver receives must meet all the following conditions to be excluded from income:

• The amount is a social assistance payment ordinarily made on the basis of a means, needs, or income test.
• The payment is made under a program provided for by federal, provincial, or territorial law.
• The payment is received directly or indirectly by the caregiver for the benefit of the care recipient.
• The care recipient must not be the caregiver's spouse or common-law partner, or related to the caregiver or the caregiver's spouse or common-law partner.
• No family allowance under the Family Allowances Act or any similar allowance provided for by provincial or territorial law can be payable in respect of the care recipient for the period for which the social assistance payment is made.
• The care recipient resides in the caregiver's principal place of residence, or the caregiver's principal place of residence must be maintained for use as the care recipient's residence during the period for which the payment is made.

If all of the above criteria are met, a social assistance payment is not required to be included in income.

You state in your correspondence that you, the caregiver, received the social assistance payments for the benefit of your daughter, the care recipient. Pursuant to subsection 251(2) of the Income Tax Act, a related person includes individuals connected by a blood relationship, marriage, common-law partnership, or adoption. Therefore, paragraph 81(1)(h) of the Act does not apply to you since your daughter is related to you by a blood relationship.

Paragraph 56(1)(u) of the Act includes in a taxpayer's income social assistance payments that are made on the basis of a means, needs, or income test, and are received in the year, except to the extent that such amounts are otherwise required to be included in the taxpayer's income or in 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 matching 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 the fact that it may possibly affect certain income-tested programs.

The first requirement in paragraph 56(1)(u) of the Act is that the amount received must be social assistance. The term "social assistance" is not defined in the Act. Social assistance generally means aid made by a government or a government agency on the basis of need.

The second requirement in paragraph 56(1)(u) of the Act is that the amount must be made on the basis of a means, needs, or income test. ITNEWS-31R2, Income Tax - Technical News No. 31R2, discusses this phrase from the perspective of foster care payments, but it is also relevant for paragraph 56(1)(u) of the Act and it states that each one of these tests is a financial test. These tests are described below:

• An income test is a test based solely on the income of the applicant.
• A means test is similar to an income test, but also takes into account the assets of the applicant.
• A needs test takes into account the income, assets, and financial needs of the applicant.

If the assistance offered by the XXXXXXXXXX under the Home Sharing Program is provided on the basis of need, and at least one of the financial tests above is applied to you or to your daughter, then the payment you receive can be considered social assistance for the purposes of paragraph 56(1)(u) and paragraph 110(1)(f) of the Act.

According to the XXXXXXXXXX Web site, the Home Sharing Program is a living situation in which an adult eligible for the XXXXXXXXXX 's supports shares a home with a person contracted to provide support and assistance. Support may include a furnished room and other space in the home, assistance with self-care and relationship building, life skills, meal preparation, personal care, and use of community resources and generic services. An adult that is eligible for the XXXXXXXXXX 's services must meet all the requirements defined by the regulations made under the Community Living Authority Act for either:

• a developmental disability, or
• significant limitations in adaptive functioning, and a diagnosis of either Fetal Alcohol Spectrum Disorder or Pervasive Developmental Disorder.

According to the individualized funding policy, the amount of funding allocated to an individual by the XXXXXXXXXX is based on the individual's disability-related needs, the estimated cost of the needed supports, and the XXXXXXXXXX 's financial resources. The types and amount of supports and services available to individuals and families through the individualized funding are consistent with what other individuals with similar levels of disability-related needs receive based on the catalogue of services. The XXXXXXXXXX does not provide funds for supports or services that fall under the mandate of other government bodies or programs such as health services or income assistance. While it appears that the amounts paid to you by the XXXXXXXXXX may be social assistance as they are paid to you by a government agency in respect of your daughter's disability-related needs, it is not clear that they are made on the basis of a means, needs, or income test. Therefore, if the payments you receive are for social assistance, but are not provided on the basis of a means, need, or income test, then they will not be included in income as per paragraph 56(1)(u) or allowed a deduction under paragraph 110(1)(f) of the Income Tax Act.

With the limited information in your letter, I am unable to answer whether the relationship between you and the XXXXXXXXXX is one of employment, contract for services, or neither. From your correspondence, it appears it is likely neither. Therefore, to the extent that the payments are for social assistance and no means, needs, or income test is applied to you or your daughter to qualify, the amount is a non-taxable payment for social assistance.

If you need more information or clarification, please contact your local XXXXXXXXXX Tax Services Office.

I trust that the information I have provided is helpful.

Yours sincerely,

Keith Ashfield

Nancy Shea- Farrow
(905) 721-5226
2010-035997