Date: 20011004
Docket: 2000-1871-IT-I,
2000-1872-IT-I
BETWEEN:
JOHN ANDERSON,
LANDY ING
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
O'Connor, J.T.C.C.
[1]
These appeals were heard on common evidence at Toronto, Ontario
on February 14, 2001. Subsequent to the hearing of the appeals,
written submissions were provided by the Appellants and counsel
for the Respondent.
[2]
Although numerous submissions have been made in these appeals,
which have contributed to the delay in rendering judgment, the
simple issue is whether or not payments received by the
Appellants in 1993 and 1994 from the Alan Stewart Homes
Corporation ("ASH") constitute income that is subject
to income tax or whether the income qualifies for an exemption
from taxation by virtue of paragraph 81(1)(h) of the
Income Tax Act ("Act") as the Appellants
maintain. It is the Respondent's position that the exclusion
in paragraph (h) does not apply because the
Appellants' did not receive a social assistance payment;
rather they received fees for services from ASH pursuant to a
contract with that corporation.
FACTS
[3]
The following are the most relevant facts:
(a)
These appeals relate to 1993 and the first two months of
February, 1994 (the "Period"). During the Period
ASH owned a home at 2123 Theoden Court ("Theoden
Court") where the Appellants resided with their three
children and the Appellants provided foster care there.
(b)
The Appellants were not taxed on the full amount of the funds
received from ASH. They were only reassessed on their net income
after deducting expenses incurred for the benefit of the foster
children. Details are set forth in Exhibit R-1, Tabs 9 and
10.
(c)
In Ontario foster care is provided either by local Children's
Aid Societies ("CAS") or by specialized corporations.
These corporations may operate on either a for-profit or a
non-profit basis.
(d)
In some cases a CAS contracts with foster parents to provide care
to foster children. A CAS may also contract with a corporation to
provide that care. Transcript, p. 74-75.
(e)
ASH is a for-profit corporation involved in the provision of
foster care primarily to children with special needs.
(f)
According to Mr. Kevin Morris, a representative of the Ministry
of Community and Social Services (the "Provincial
Ministry"), a CAS that engages foster parents to provide
foster care had to pay those foster parents a minimum per diem of
$14.00 per day during the Period, i.e. 1993 and 1994. However,
the Provincial Ministry did not mandate that ASH make any minimum
payment to the Appellants during the Period. Transcript, p. 101,
lines 17-21; p. 118, line 7; p. 135, lines 1-13.
(g)
The Provincial Ministry did not review the contract between
ASH and the Appellants.
(h)
ASH's group home licence for Theoden Court stated that ASH
could charge $87.50 per day for a child placed there. Transcript,
p. 119, line 17.
(i)
It was understood and accepted by the Ministry that the $87.50
rate included an amount as profit for ASH based on occupancy
rates. Transcript, p. 121, line 14-25; p. 122, line 1-16; p.
132-133.
(j)
The Provincial Ministry did not require ASH to account for how it
spent the $87.50.
(k)
The $87.50 limit was not intended to operate as a limit on what
ASH could charge; rather it represented the maximum amount that
the Provincial Ministry was willing to pay to a CAS to go out and
purchase services from ASH.
(l)
The $87.50 per diem was not set by statute or regulation.
Transcript, p. 129, lines 11-14.
(m) The
Appellants entered into a contractual arrangement with ASH on
August 1, 1990 to provide care to children placed with ASH. The
contract provided that the Appellants were to be paid $32.00 per
day per child (raised to $35.30 per day for the Period). ASH
provided the house at Theoden Court, where the Appellants and
their three children lived during the Period, on a rent-free
basis. ASH also supplied furniture, paid for major repairs,
medical and dental costs, prescription drugs, and part of the
clothing needed by children in the care of ASH. The Appellants
paid for utilities, non-prescription drugs, transportation
services, allowances and recreation for the children. Transcript,
p. 12-14, p. 46 lines 1-3; Exhibit R-1, Tab 12.
(n)
Mr. Anderson acknowledged that it would have been impossible for
the Appellants to support a family of five (the two Appellants
and their three children) without the per diem. That income was
essential to meeting the basic living expenses of the Appellants
and their family. Transcript, p. 46-47.
(o)
Ms. Ing in cross-examination acknowledged that the income of the
Appellants fluctuated between 1990 and 1993 because she and
Mr. Anderson had children of their own during that period.
However, the amount of the per diem did not change to take into
account these fluctuations. Transcript, p. 59-62, esp. p. 60,
lines 17-25.
SUBMISSIONS
[4]
The Respondent submits that the income received by the Appellants
from ASH is not exempt from taxation for the following
reasons:
(a)
the payment from ASH to the Appellants is a fee or salary and not
a social assistance payment or a payment made under a program
provided for by a law of Canada or a province;
(b)
the payment is not based on the means, needs or income of either
the Appellants or the foster children;
(c)
the Minister has already allowed a deduction to the extent that
the payments were used to cover the costs of the foster children.
No further exemption is allowed under paragraph
81(1)(h).
[5]
Paragraph 81(1)(h) provides the following tax
exemption:
81(1) There shall not be
included in computing the income of a taxpayer for a taxation
year,
...
(h)
where the taxpayer is an individual (other than a trust), a
social assistance payment (other than a prescribed payment)
ordinarily made on the basis of a means, needs or income test
under a program provided for by an Act of Parliament or a law of
a province, to the extent that it is received directly or
indirectly by the taxpayer for the benefit of another individual
(other than the taxpayer's spouse or a person who is related
to the taxpayer or to the taxpayer's spouse), if
(i)
no family allowance under the Family Allowances Act or any
similar allowance under a law of a province that provides for
payment of an allowance similar to the family allowance provided
under that Act is payable in respect of the other individual for
the period in respect of which the social assistance payment is
made, and
(ii)
the other individual resides in the taxpayer's principal
place of residence or the taxpayer's principal place of
residence is maintained for use as the residence of that other
individual, throughout the period referred to in subparagraph
(i);
A.
Payment is a fee for services not a social assistance
payment made under a program provided for by the law of a
province.
[6]
There are two separate requirements:
(a)
The payment must be social assistance, and
(b)
Payment must be made under a program provided for by a provincial
law.
Both requirements raise the same issue: Did the Appellants
receive a per diem because they had a statutory right to be paid
or was the per diem simply consideration owed pursuant to the
terms of a contract? Counsel for the Respondent has advised that
the Minister has been willing to accept on an administrative
basis that a non-profit organization is essentially the same as
the government. Thus a payment from such an organization directly
to a foster parent is the same as a payment from a government,
but the Minister has never extended this treatment to payments
from a for-profit entity. Reference was made to the Income Tax
Technical News No. 17, Apr. 26, 1999. It is submitted that a
person's entitlement to a social assistance or program
payment is a right created by the specific statute that mandates
the payment. The resulting payment is not given as consideration
for any good or service. By contrast the Appellants do not have a
statutory right to be paid. All they have is a contractual right
to be paid and that payment is made as consideration for services
rendered.
[7]
InStorey Group Homes Ltd. v. The Minister of National
Revenue, 92 DTC 1295 the Appellant was a
corporation that provided foster care through houses staffed by
house parents. The parents performed duties that were similar to
those of these Appellants. The corporation received almost all of
its income from various Children's Aid Societies. The
corporation argued that the money that it received from the
CAS's was a social assistance payment and was not taxable.
Despite a concession on this point by the Respondent, Bonner,
J.T.C.C. expressed strong reservations that such payments
constituted social assistance and refused to make such a finding.
His conclusion on the tax status of the payments was as
follows:
... The amounts received by the Appellant were received by it
as the ordinary revenues of its business pursuant to contracts
between it and the various children's aid societies. Such
amounts were not, in my view, received as social assistance.
...
[8]
The decision in Saulniers v. Her Majesty the Queen, [1996]
T.C.J. No. 1298 case also relied on a distinction
between money paid as of right and money earned under a contract.
The Court was of the view that paragraph 81(1)(h) was
never intended to exempt income earned by a person running a
business at a profit.
[9]
In this case the Appellants are running a business at a profit
and, according to the evidence, they depend on their income from
ASH to help make a living. In this way they are no different from
teachers, social workers or fire fighters. [One might add the
clergy, doctors and nurses.] Persons working in each of those
professions render an important service to society and often do
so for reasons other that the possibility of making money.
Nevertheless each of those persons is taxed on their earnings
because their occupation constitutes a source of income.
B.
Means, Needs or Income Test
[10] Paragraph
81(1)(h) requires that the payments in question be made on
the basis of a means, needs or income test. Thus a person is only
entitled to the payment if his means, needs or income are within
the parameters set out by the legislation. In this case neither
the Appellants' right to be paid, nor the quantum of payment
was dependant on passing a means, needs or income test. Instead
the Appellants had a contractual right to be paid a specific per
diem regardless of the means, needs or income, of themselves or
the children who were under the care of ASH.
C.
The Profit Component
[11] The fact
that both ASH and the Appellants derive a net income from the
money received for each child is one of the strongest indicators
that there is no relationship between the means, needs, or income
of the children and the amount of the payment. The amount of
money that ASH can charge for taking care of a child includes a
profit component for ASH. This profit margin has nothing to do
with means, needs or income of the Appellants or the children
under their care.
[12] Likewise,
the payments from ASH are intended not only to cover costs
related to providing foster care, but also to compensate the
Appellants for their services. The Appellants received $35.30 per
day per child but did not need the full amount to care for each
foster child. Instead the Appellants treated the money as gross
income. They used the funds to cover the costs of caring for the
foster children, and whatever was left constituted their net
income. That net income was for their benefit and they did not
have to account to anyone for the manner in which it was
spent.
D.
Payment for the Benefit of Another Person
[13] In the
alternative that the payments to the Appellants constituted
social assistance payments made on the basis of a means, needs or
income test provided for under the law of a province, it is
submitted that only the portion of the payment that was for the
benefit of the children under the Appellants' care qualifies
for the exemption under paragraph 81(1)(h).
[14] Paragraph
81(1)(h) only exempts the payment in dispute from taxation
"... to the extent that it is received directly or
indirectly by the taxpayer for the benefit of another individual
...".
[15] In this
case, the Minister did not tax the entire amount of the per diem.
The Minister allowed the Appellants to deduct the cost of
actually providing care to the foster children. The Minister only
taxed the Appellants on the net income from the per diem which
net income benefited the Appellants and not the foster children.
Since the foster children did not benefit from this net income,
no further reduction is permitted by paragraph 81(1)(h) of
the Act.
[16] The above
summary of facts and Respondent's submissions have, to a
large extent, been extracted from the Respondent's Written
Submissions. In my opinion these submissions are correct. The
result is that the appeals are dismissed.
Signed at Ottawa, Canada, this 4th day of October,
2001.
"T. O'Connor"
J.T.C.C.
COURT FILE
NO.:
2000-1871(IT)I and 2000-1872(IT)I
STYLE OF
CAUSE:
John Anderson and Landy Ing v. The Queen
PLACE OF
HEARING:
Toronto, Ontario
DATE OF
HEARING:
February 14, 2001
REASONS FOR JUDGMENT BY: The
Honourable Judge Terrence O'Connor
DATE OF
JUDGMENT:
October 4, 2001
APPEARANCES:
Counsel for the Appellant: The Appellants themselves
Counsel for the
Respondent:
Michael Ezri
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-1871(IT)I
BETWEEN:
JOHN ANDERSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the
appeals of
Landy Ing (2000-1872(IT)I) on February
14, 2001 at Toronto, Ontario
by the Honourable Judge Terrence
O'Connor
Appearances
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Michael Ezri
JUDGMENT
The
appeals from the reassessments made under the Income Tax
Act for the 1993 and 1994 taxation years are dismissed in
accordance with the attached Reasons for Judgment.
Signed
at Ottawa, Canada, this 4th day of October, 2001.
J.T.C.C.
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