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This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: [TaxInterpretations translation]
1. Are the individual's compensation payments amounts paid for the benefit of beneficiaries within the meaning of paragraph 81(1)(h) of the Act and are they excluded from income pursuant to that paragraph?
2. What would be the tax treatment of the gain realized on the sale of the individual's residence in which the individual lived and in which the individual housed beneficiaries?
3. If the public institution provides the residence free of charge to its employee for the purpose of housing the beneficiaries, is the provision of the residence free of charge a taxable benefit to the employee pursuant to paragraph 6(1)(a) of the Act?
Position:
1. Amounts received by the individual under the ARHSSS benefit the beneficiaries. These amounts are paid by the public institution under a provincially legislated program after applying a means, needs and income test. If the other conditions of paragraph 81(1)(h) are satisfied, the individual would not include the compensation amounts in income.
2. General comments.
3. There is a benefit conferred on the employee by the employer. However, the value of the benefit must be reduced to reflect the fact that the residence is shared with the beneficiaries and is not used solely for the personal purposes of the employee and the employee’s family.
Reasons:
1. Amounts are paid for accommodation, care and services provided to beneficiaries, so these amounts are for the benefit of the beneficiaries. Analysis of the ARHSSS.
2. It depends on whether the property meets the definition of principal residence and whether paragraph 45(1)(c) applied when the individual began to house beneficiaries and began to receive amounts as an intermediate resource or family-type resource. Paragraph 45(1)(c) could apply in certain circumstances if paragraph 81(1)(h) did not apply in respect of all amounts received for the beneficiaries.
3. Section 6(1)(a) provides for the inclusion in employment income of the value of accommodation received or enjoyed by the employee.
XXXXXXXXXX Sylvie Labarre, CA
2003-000701
October 20, 2003
Dear Madam,
Subject: Housing resource
This is further to your fax of March 7, 2003, requesting our views on paragraph 81(1)(h) of the Income Tax Act (the "Act") and certain related matters. We apologize for the delay in responding to this request.
Facts
1. An individual, other than a trust, is recognized as an intermediate resource or a family-type resource within the meaning of the Act respecting health services and social services (R.S.Q., c. S-4.2) (the "ARHSSS").
2. This individual resides in Quebec where he owns or rents an apartment in which he lives throughout the year. He takes in seven adult beneficiaries with intellectual disabilities.
3. These beneficiaries were referred to him by a public institution referenced in section 98 of the ARHSSS and identified by a regional board established under section 339 of that Act.
4. There is an arm's length relationship between the individual and the beneficiaries.
5. The individual's apartment allows him to accommodate nine beneficiaries throughout the year. The public institution having referred only seven beneficiaries to him, the individual maintains, 24 hours a day and seven days a week, two places available pending the replacement of the two users who have left the individual's residence.
6. An employment relationship links the individual to the public establishment for purposes of the Quebec Labour Code and tax laws.
7. The individual's remuneration is calculated on the basis of a scale of rates determined in accordance with the terms and conditions set out in the ARHSSS. There is basic remuneration as well as a remuneration according to the services provided to the beneficiaries. There is also an allowance for the availability of rooms for a certain period when they are not occupied. There is also an allowance for resourcing.
8. In addition, the individual is also reimbursed for certain expenses as provided for in the health and social services regulations.
9. The payment of basic and supplementary fees is guaranteed by the public institution to which the individual is attached. However, a portion of this payment is assumed by the beneficiary from the beneficiary’s last-resort financial assistance benefit paid under the Employment Assistance Program in accordance with the Act respecting income support, employment assistance and social solidarity of Québec.
10. An employment relationship exists between the individual and a person who is employed by the individual on a full-time basis to assist in providing the care required by the beneficiaries. The individual pays remuneration to this employee from the remuneration paid by the public institution.
11. The gross amounts received annually by the individual, excluding reimbursement of expenses, exceed $100,000.
Questions
Amounts of remuneration and reimbursement of expenses
Are the individual's compensation payments amounts paid for the benefit of beneficiaries within the meaning of paragraph 81(1)(h) and are they excluded from income pursuant to that paragraph? To this end, you asked whether paragraph 81(1)(h) applies only to social benefits paid to an individual who hosts no more than nine beneficiaries in the individual’s principal place of residence.
Do compensation payments that are excluded from the individual's income pursuant to paragraph 81(1)(h) form part of the individual's insurable earnings for EI purposes?
Are amounts received as reimbursement of expenses taxable?
Disposition of the individual's residence
What would be the tax treatment of the gain on the sale of the individual's residence in which the individual lived and in which the individual accommodated beneficiaries for whom the individual received social assistance benefits?
Residence provided by the public institution
If the public institution provides the residence free of charge to the individual for the purpose of housing the individual and the beneficiaries, is this a taxable benefit to the individual by virtue of paragraph 6(1)(a) of the Act?
Will this residence provided by the public institution be considered to be the individual's principal place of residence for purposes of paragraph 81(1)(h) knowing that the individual lives only in that residence?
Remuneration paid to an employee
Is the remuneration paid by the individual to the individual’s employee out of the remuneration of the public institution excluded from the employee's income pursuant to paragraph 81(1)(h) and, if so, is it part of the individual’s insurable earnings for Employment Insurance purposes?
Our Comments
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is the practice of the Canada Customs and Revenue Agency (CCRA) not to issue a written opinion concerning proposed transactions otherwise than through advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination in initially lies with our Tax Services Offices following the examination of all the facts and documents, which is usually performed as part of an audit engagement. We can, however, offer you the following general comments which we hope will be useful to you. These comments may, however, in certain circumstances, not apply to your particular situation.
Amounts of remuneration and reimbursement of expenses
In the situation you presented to us, the ARHSSS establishes a classification of the services offered by the individual (who is an intermediate resource or a family-type resource) based on the degree of support or assistance required by the users. We are of the view that the amounts received by the individual as an intermediate resource or family-type resource under the ARHSSS benefit the beneficiaries since the accommodation, care and services offered benefit the beneficiaries, even if the individual receiving the amount is an employee of the public institution. The same is true for the daily availability allowance, which preserves a place that will benefit a future beneficiary.
We have already established in the past that a contribution paid by a public institution to a family-type resource or an intermediate resource under the ARHSSS is usually a social assistance benefit paid to an individual under a provincially legislated program, after a means, needs and income test. The same is true for the portion of the user's contribution that comes from last-resort financial assistance paid under the Employment Assistance Program pursuant to Quebec's Act respecting income support, employment assistance and social solidarity when a user has been referred to the family-type resource or intermediate resource by a "public institution" under the ARHSSS.
Subject to meeting the other conditions of paragraph 81(1)(h), the individual would not include the compensation and allowance amounts described in paragraph 7 above in computing income. However, if there is an employment relationship between the individual and the public institution, the amounts received in respect of that employment would be insurable earnings for the purposes of the Employment Insurance Act, even though paragraph 81(1)(h) applies in respect of those amounts. Whether all of the amounts described in paragraph 7 of this letter are amounts received by the employee in respect of his employment is a question of fact. It is not possible to decide this issue in a hypothetical situation. However, in a specific situation, this issue could be reviewed by the Collections Division (CPP/EI Eligibility Section) of your Tax Services Office.
Please note that an employer must withhold EI premiums at source until the maximum annual insurable earnings are reached, regardless of how often the insurable earnings are paid.
Furthermore, we are of the view that the expense reimbursement amounts referred to in paragraph 8 above are not means-tested, needs-tested and income-tested social assistance benefits. Consequently, paragraph 81(1)(h) does not apply in respect of those amounts. On the other hand, we are of the view that such amounts received as reimbursements of expenses would not constitute a benefit conferred on an employee as they are not reimbursements for personal expenses. Consequently, these amounts would not form part of the taxpayer's employment income or insurable earnings for the purposes of the Employment Insurance Act.
Paragraph 81(1)(h) may apply to social assistance benefits received by an individual even if the number of recipients living in the individual's principal place of residence exceeds nine.
Disposition of the individual's residence
The tax treatment of the gain realized on the disposition of the residence will depend on whether the entire residence qualifies as a "principal residence", as defined in section 54 of the Act, during the years in which it is held. The definition of principal residence refers to a housing unit and requires that the housing unit be ordinarily inhabited in the year by the individual, the individual's spouse or common-law partner, or a child. There is no specification in this definition that the housing unit must not be inhabited by other persons. A residence could be a "principal residence" even if the residence has been inhabited by beneficiaries in addition to the individual and the individual’s family.
On the other hand, the characterization of the entire residence as a "principal residence" will depend on the application of paragraph 45(1)(c) where the individual has begun to house beneficiaries and has begun to receive amounts as an intermediate resource or family-type resource. If all amounts received by an individual as an intermediate resource or family-type resource were not included in computing the individual's income pursuant to paragraph 81(1)(h), we would could not say that the individual began to use part of the residence to earn income when the individual began to house beneficiaries, and paragraph 45(1)(c) would not apply. If the residence is otherwise a "principal residence", the entire residence would qualify as a "principal residence".
If some amounts were included in the individual's income because paragraph 81(1)(h) did not apply in respect of all amounts received, the question of whether paragraph 45(1)(c) applied when the individual began to harbour beneficiaries in respect of whom the individual received amounts included in income would have to be determined by taking into account the position taken in paragraph 32 of Interpretation Bulletin IT-120R6. Under that position, if the residence is otherwise a principal residence of the individual, it is our practice not to apply the deemed disposition rule in paragraph 45(1)(c), but rather to consider that the entire property retains its nature as a principal residence, where all of the following conditions are met:
(a) the income-producing use is ancillary to the main use of the property as a residence,
(b) there is no structural change to the property, and
(c) no capital cost allowance is claimed on the property.
The disposition of a capital property that does not meet the definition of principal residence will result in a capital gain if the proceeds of disposition exceed the adjusted cost base.
Residence provided by the public institution
If the employer provides the individual with the residence in which the individual lives with the individual’s family at no cost, and in which the beneficiaries for whom the individual is responsible also live, we are of the view that the employee will be required to include the value of the accommodation enjoyed by the individual in income pursuant to paragraph 6(1)(a). However, we are of the view that the value of the benefit should be reduced to reflect the fact that the residence is shared with the beneficiaries and is not used solely for the personal purposes of the individual and the individual’s family. We do not comment on the valuation of a benefit.
The fact of the employer providing the residence to the individual does not in itself prevent paragraph 81(1)(h) from applying. The residence may be the individual's principal place of residence in the same way as if the individual owned it. Indeed, the principal place of residence is the place where the individual regularly, ordinarily or customarily lives; the word "principal" is relevant only if the individual has more than one place of residence. However, depending on the circumstances in some situations, it is possible that the individual's principal place of residence is only a room or suite in the residence in which the individual lives, and not the entire residence. In those situations, the beneficiaries would not be staying in the individual's principal place of residence.
Remuneration paid to an employee
We do not have enough information to answer the last question. Even if we can say that the amount is received indirectly by the employee, we would have to ask whether the amount was received for the benefit of the beneficiaries (whether the care and services provided by the employee benefit the beneficiaries). Furthermore, we have no indication that the employee paid by the individual has as the employee’s principal place of residence the same apartment or residence as the beneficiaries, which is an essential condition for the application of paragraph 81(1)(h).
These comments are not advance income tax rulings and are not binding on the CCRA with respect to any particular situation.
Best regards,
Ghislaine Landry, CGA
for the Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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