15 September 2010 External T.I. 2009-0338621E5 - 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: 1. Are payments made by the organization as part of its employment assistance services taxable to the payee?

Position: 1. Yes, the amounts are taxable as social assistance under paragraph 56(1)(u) and also subject to a deduction under paragraph 110(1)(f). However, where paragraph 233(2) of the Regulations applies to exempt the payer from issuing a T5007, it is the policy of the CRA to allow the payee to exclude the amount from income.

Reasons: 1. Where an amount is included under any other section of the ITA, p. 56(1)(u) is broadly worded to include payments made on a means, needs or income test basis.

XXXXXXXXXX
								Robert Dubis
								2009-033862

September 15, 2010

Dear XXXXXXXXXX :

Re: Employment Assistance Payments

This is in response to your correspondence of August 27, 2009, regarding payments made by your organization as part of your employment assistance services. We apologize for this delayed reply.

In your correspondence, you state that XXXXXXXXXX (the "organization") is a not-for-profit organization which offers a variety of employer services, employment assistance services and economic development services within its communities. As part of its employment assistance services, the organization may provide financial assistance to individual clients who demonstrate a financial need. The assistance is not paid in cash to the client but includes payments in the form of vouchers or direct payments to a service provider. The types of assistance include gas vouchers, bus passes, employment clothing, tools of the trade, daycare expenses and short term training such as First Aid, WHMIS or Food Safe. Your letter states that the total of supports to a client rarely exceeds $150. You asked whether such assistance should be included in income for tax purposes by your clients.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings. As noted in paragraph 7 of Information Circular IC 70-6R5, the Canada Revenue Agency (CRA) will not provide an advance ruling on a completed transaction. Where a situation involves a specific taxpayer and a completed transaction, the request should be addressed to the relevant tax services office. Although we cannot comment on your specific situation we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature and are not binding on the CRA.

It is a question of fact whether a payment from a particular program is income for tax purposes. Based on the information provided in your letter, it is our view that direct or indirect assistance paid to or on behalf of your clients to assist them in participating in a Return to Work Action Plan would be included in income under paragraph 56(1)(u) of the Income Tax Act (ITA) as a "social assistance payment made on the basis of a means, needs, or income test." Generally an "income test" is based solely on the income of each applicant; a "means test" encompasses both the income and assets of the applicant and a "needs test" takes into account the income, assets and needs of the applicant. Where income is included under paragraph 56(1)(u) of the ITA, it is offset by a matching deduction under paragraph 110(1)(f) of the ITA. While there is no impact on an individual's taxable income, the inclusion under paragraph 56(1)(u) of the ITA may impact any of a variety of income-tested programs such as the Child Tax Benefit or the GST/HST credit as well as certain federal, provincial or territorial tax credits and benefits.

Although the term "social assistance" is not defined in the ITA, previous rulings issued by the Canada Revenue Agency (CRA) conclude that the broad wording of this provision means that "aid made in any form in respect of a person in need" would be considered social assistance for the purposes of paragraph 56(1)(u) of the ITA. Such assistance may be provided by government funded agencies or private organizations.

Where a person makes a payment described in paragraph 56(1)(u) of the ITA, subsection 233(1) of the Income Tax Regulations (the "Regulations") requires that person to issue the required T5007 form and file an information return. However, subsection 233(2) of the Regulations outlines specific exceptions to the general filing requirements. The exceptions include:

• paragraph 233(2)(b) which exempts a payment that is in respect of child care services (within the meaning assigned by paragraph 63(3)(a) of the ITA) incurred by or on behalf of the payee
• paragraph 233(2)(g) which exempts a payment that is not part of a series of payments, and
• paragraph 233(2)(f) of the Regulations which exempts payments made in a particular year as part of a series of payments, the total of which does not exceed $500.

It appears that most of the payments described in your letter would fall within these exemptions and the prescribed form would not be required. Please refer to the T4115, T5007 Guide- Return of benefits, for more information. Furthermore, where subsection 233(2) of the Regulations excludes a particular payment from the general reporting requirements, it is the policy of the CRA to allow recipients to exclude the amount from income.

We trust our comments will be of assistance to you.

Yours truly,

Sharmini Ratnasingham
Manager
For Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch