22 September 1999 Internal T.I. 9919997 - EARNINGS SUPPLEMENTS & 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.

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: Tax treatment of transportation subsidies and earnings supplements paid to social assistance recipients by BC government.

Position: Transportation subsidies included as social assistance under 56(1)(u); earnings supplements taxable under 56(1)(r)(i)

Reasons: Wording of provisions; similar position taken in the past; discussions with finance.

								September 22, 1999

Pacific Regional Office						HEADQUARTERS
Vancouver, BC						Wayne Antle
957-2058
								1999-000314

Attention: Charmaine Martin

Payments to Social Assistance Recipients

We are writing in response to your memo of July 13, 1999 concerning the tax treatment of payments made as transportation subsidies to people who are receiving social assistance, and transitional benefits provided to social assistance recipients as an incentive to return to the workforce.

In accordance with our telephone conversation of September 3, 1999 (Antlel/Martin), our understanding of each program is as follows:

1.In the past, people receiving social assistance were provided with free bus passes. As a result of a Human Rights Tribunal decision, this program was considered discriminatory against individuals who, because of a disability, could not use public transit. Consequently, the program is being modified so that every social assistance recipient would be provided with an annual transportation subsidy, paid under the British Columbia Supply Act, of between $500 and $600 in lieu of the free bus passes.

2.Transitional benefits paid under the British Columbia Benefits Act would be provided to individuals who have left the workforce, and are now receiving social assistance, to encourage them to return to employment. The monthly benefit would be calculated as 10% of the person's last three month's earnings, and would be paid directly to the individual by the provincial government when the individual goes back to work.

Our Comments

Generally, social assistance payments made to an individual on a means, needs, or income test should be included in the individual's income under paragraph 56(1)(u) of the Income Tax Act (the "Act") unless otherwise required to be included. In our view, the transportation subsidies described in your email would fall within the purview of paragraph 56(1)(u) of the Act and should be reported as social assistance benefits. However, if the recipient is married and lives with his or her spouse, these payments are required to be included in the income of the spouse with the higher income. When social assistance payments are required to be included in an individual's income under paragraph 56(1)(u) of the Act, a corresponding deduction is permitted under paragraph 110(1)(f) of the Act in determining taxable income. The effect is that the social assistance payments are not subject to tax. However, as the payments are included in the individual's net income, they are taken into account in determining the amount of certain federal tax credits and benefits.

Subsection 233(1) of the Income Tax Regulations provides that an information slip (T5007 Supplementary) is required to be issued for social assistance payments that are required to be included in income under paragraph 56(1)(u) of the Act unless the payments are excepted under subsection 233(2) of the Regulations. We do not have enough information to determine if the transportation subsidies would be covered by the reporting exceptions listed in subsection 233(2) of the Regulations. In this regard, we refer you to the enclosed "Income Tax Guide for the T5007 Information Return of Benefits" which lists the specific payments that need not be reported on a T5007 Supplementary.

With respect to the transitional benefits described above, sub-paragraph 56(1)(r)(i) of the Act includes in income "earnings supplements provided under a project sponsored by a government or government agency in Canada to encourage individuals to obtain or keep employment...". Whether this provision applies is a question of fact which depends on whether the transitional benefits paid under the British Columbia Benefits Act would be considered to be paid under a project sponsored by a government in Canada, whether the financial incentives can be considered earnings supplements, and whether they can be considered to have been paid to encourage individuals to obtain employment. In our view, the word project can be read as synonymous with program. Since the transitional benefits are paid under a program funded by the British Columbia government, and are described as earnings supplements to encourage individuals to return to the workforce, the benefits would be included in income under paragraph 56(1)(r) of the Act. Income tax is required to be withheld from these amounts, and the benefits should be reported on a T4A Summary and related T4A Supplementaries.

R. Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch