1 October 2010 External T.I. 2009-0351971E5 - Social Assistance payments

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: Are funds provided under a Provincial Self-Managed Care Program used to hire attendant care considered a reimbursement of medical expenses under paragraph 118.2(3)(b)?

Position: Yes.

Reasons: Paragraph 118.2(3)(b) is intended to exclude the cost of medical expenses that are paid to the taxpayer to the extent they are not included in the taxpayer's income. The word 'reimbursement' is sufficiently broad to include this type of social assistance in its meaning.

XXXXXXXXXX 							2009-035197
								W. Doiron
October 1, 2010

Dear XXXXXXXXXX :

Re: Social Assistance Payments

This letter is in response to your fax dated December 15, 2009. In your fax, you requested whether funding received from the Alberta government under the Self-Managed Care Program ("Program") would be considered a reimbursement of medical expenses under paragraph 118.2(3)(b) of the Income Tax Act.

The particular situation outlined in your fax appears to relate to a factual one, involving a specific taxpayer. 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 income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to offer the following general comments, which may be of assistance.

Please note that all statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").

General comments

Based on the limited information provided, the funds received under the Program would be considered social assistance for the purposes of paragraph 56(1)(u) and therefore would normally be required to be included in the taxpayer's net income. However, subsection 233(2) of the Income Tax Regulations (the "Regulations") excludes certain social assistance payments, including payments in respect of medical expenses, from the general reporting requirements under subsection 233(1) of the Regulations. As a result, it is the policy of the CRA to allow recipients to exclude from income certain amounts that otherwise would be included in income under paragraph 56(1)(u) but that are specifically described in subsection 233(2) of the Regulations and therefore, excluded from the general reporting requirements under subsection 233(1) of the Regulations (i.e. no T5007 is issued to payee).

With respect to the Medical Tax Credit, whether the attendant care expenses incurred by the taxpayer would be qualified medical expenses is a determination of fact. Given that, it is likely that the attendant expenses would meet the requirements as a qualified medical expense. However, paragraph 118.2(3)(b) provides for a specific exclusion for an otherwise qualified medical expense:

"there shall not be included as a medical expense of an individual any expense to the extent that

(i) the individual,
(ii) the person referred to in subsection (2) as the patient,
(iii) any person related to a person referred to in subparagraph (i) or (ii), or
(iv) the legal representative of any person referred to in any of subparagraphs (i) to (iii)is entitled to be reimbursed for the expense, except to the extent that the amount of the reimbursement is required to be included in computing income and is not deductible in computing taxable income."

In this case, the funds received by the taxpayer from the Program would be considered a reimbursement for the purposes of paragraph 118.2(3)(b). Therefore, if we assume that the attendant care costs are qualifying medical expenses under subsection 118.2(2), the attendant care costs incurred by the taxpayer would only be eligible medical expenses for the purposes of the Medical Tax Credit to the extent that the costs incurred exceed the amount reimbursed under the Program. Please note that although the amounts are considered reimbursements for the purposes of paragraph 118.2(3)(b), the amounts in question are still considered to be social assistance payments.

We trust these comments will be of some assistance.

Yours truly,

Lita Krantz
Assistant Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch