19 March 1992 Administrative Letter 9130266 F - Exempt Status of Salary and Allowance

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.

March 19, 1992

Social Assistance Payments to Caregivers

This is in reply to your memorandum of October 31, 1991 in which you asked us for our comments on a situation involving certain payments made to a caregiver. We apologize for the delay in responding.

In the situation you describe, a taxpayer has been engaged as a caregiver by the        24(1)     which is a registered charity. In this capacity, she provides residential support, including room and board, to one mentally handicapped person contracted to the Association by the       24(1)       In connection with this situation, you have enclosed a document entitled "Terms of Agreement with Caregiver" (the Agreement) which indicates that the caregiver is an employee of the Association and that the Agreement ceases upon termination of funding by the Ministry. The Agreement also includes other terms that relate to services that are to be rendered by the caregiver. While the Agreement does not specify the amount of income that the caregiver was to receive for her services, it has been determined that she received        24(1)        per month during 1989. The Association has characterized these payments as being on account of salary         24(1)       , and on account of room and board for the handicapped individual           24(1)          The payments of         24(1)        per month are reported as salary and the payments of         24(1)        per month have been included on the recipient's T-4 on the basis that they are subject to tax under paragraph 6(1)(a) of the Income Tax Act (the Act).

24(1)

Accordingly, we assume that the caregiver and the Association are subject to an employment contract in addition to the agreement referred to above.

With respect to the above circumstances, you have referred to paragraph 81(1)(h) of the Income Tax Act (Bill C-18 has recently been enacted) which exempts certain payments to caregivers. In particular, this provision in part refers to "a social assistant payment ... 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..." (underlining added). In relation to this wording, you have asked for our comments on whether the salary and the room and board can be regarded as social assistance payments indirectly received by the recipient for the benefit of the patient. On the basis that the room and board payments are not exempt under paragraph 81(1)(h) you have also asked us for our comments on whether the room and board payments should be excluded from the caregiver's employment income.

Our Comments

In the case of the salary payments of      24(1)      per month, the key element appears to be that the Association cared for the patient by hiring an employee to render services to the Association in that regard. In our view, it follows that even if the Association proceeded to use the payments received from the Ministry in providing the care, the salary of          24(1)    a month received by the caregiver cannot be regarded as having been "indirectly" received from the Ministry (the salary was received by the caregiver solely in the course of providing services to the Association.). Accordingly, these payments are subject to tax under subsection 5(1) of the Income Tax Act rather than being exempt under paragraph 81(1)(h).

An additional point with respect to the salary is that since the Association cared for the patient, the salary payments received by the caregiver also cannot be regarded as having been received by the caregiver "for the benefit" of the patient. Rather, the payments were received by the caregiver in the course of rendering services to the Association.

On the other hand, the room and board payments seem to have been made in relation to expenses that were incurred by the caregiver with respect to the patient (as opposed to being compensation for services rendered) in circumstances where the employer was ultimately responsible for these expenses. Consistent with these comments, it appears that these payments should more appropriately be characterized as relating to the cost of food and shelter because the caregiver received a salary for her services. As a consequence of these circumstances, it seems to us that the room and board payments were made outside the employment services arrangement between the caregiver and the Association with the result that they are not subject to tax as employment income. On the assumption that the source of funds used by the Association to make these payments were the funds received from the Ministry, it is also our view that the caregiver can be considered to have "indirectly" received the room and board payments from the Ministry on the basis that the caregiver provided the patient with food and shelter. In addition, the available information indicates that these payments were received by the caregiver "for the benefit" of the patient. Therefore, it appears that these payments are described in paragraph 81(1)(h) provided they otherwise qualify. For your further information, we note that the use of these payments by the caregiver can be contrasted with the use of the salary payments in respect of which the caregiver was apparently free to use them in any manner she chose.

As a final comment, we are mentioning that in the above case, there may be other considerations (e.g., it appears that there is an employment contract in addition to the Agreement). However, we hope that the foregoing comments, which were made on the basis of the available information, will be of assistance to you.

If you require further technical assistance, we would be pleased to provide our views.

B.W. DathDirectorBusiness and General DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch