6 September 1995 External T.I. 9519285 - TAXATION OF PAYMENTS FOR FOSTER CARE

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

taxation of foster payments

Position TAKEN:

restatement of the conditions set out in 81(1)(h)

Reasons FOR POSITION TAKEN:

enquirer is looking for confirmation of opinion given by phone

A. Humenuk
XXXXXXXXXX 951928

Attention: XXXXXXXXXX

September 6, 1995

Dear XXXXXXXXXX:

Re: Foster Care

We are replying to your letter of July 4, 1995 concerning the taxation of payments received by an individual from the Children's Aid Society for the care of children with behavioral problems.

In your letter you outlined a situation where an individual receives $124.95 per day for each child supervised by himself, his associate and his six employees. The children live in a residence which the individual has rented for this purpose. You ask for clarification of the comments given to you by telephone concerning the circumstances under which such payments would be taxable or tax exempt.

The confidentiality provisions of the Income Tax Act prohibit us from discussing the income tax affairs of a particular taxpayer without written authorization from that person to do so. Although we have provided general comments on the taxation of payments made in respect of children in the care of the province (foster children), a review of all the relevant facts and documentation is needed in order to assess the tax consequences of a particular set of transactions. In particular, it is not clear from your letter

- whether or not the individual in question ordinarily resides with the children under his care,

- the nature of the relationship between the individual and the Children's Aid Society or

- the source of the program funding and the legislative authority under which such payments are made.

Please note that the comments which follow do not constitute an advance income tax ruling and are, accordingly, not binding upon the Department with respect to any particular transaction.

Under paragraph 81(1)(h) of the Income Tax Act, payments to an individual for the care of foster children (or adults who are incapable of caring for themselves) will generally be excluded from income where:

a) the cared-for person is unrelated to the individual,

b)the cared-for person is living in the individual's principal place of residence or the individual's principal place of residence is maintained for use as the residence of the cared-for person and

c)the payment is made under a social assistance program of a province or of Canada.

Payments made by a provincial government or its agent to an individual to care for foster children in his or her home is ordinarily excluded from income under this provision. However, the exemption from tax does not apply to salary or wages paid under a contract of employment even if the duties of employment are performed in the employee's residence.

It is a question of fact as to whether a caregiver is an employee or an independent contractor. The Source Deductions Division in the local tax services office is prepared to review the facts and circumstances, including the contract under which payments are made to the caregiver, in order to determine the caregiver's status for the purpose of the Canada Pension Plan and Unemployment Insurance Act. The status so determined applies for the purpose of the Income Tax Act as well.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch