2012-0440351E5 In home care of a person with a disability

Principal Issues: 1. Are payments taxable when paid to an independent contractor from a government where the contractor is providing family care for a person with a disability? 2. Are additional payments received by the same contractor from the person with a disability, taxable?

Position: Depends

Reasons: Must meet the requirements to be exempt under paragraph 81(1)(h).

Author: Robertson, George
Section: 56(1)(u), 81(1)(h), 110(1)(f); 251(2)(a); 251(6)(a)

XXXXXXXXXX
                                                                                                                                                        2012-044035
                                                                                                                                                        George A. Robertson, CMA
January 30, 2015

Dear XXXXXXXXXX:

Re:   Payments Received for Family Care for a Person with a Disability

This is in response to your letter concerning the taxation of payments you receive for the in-home care of a person with a disability. Specifically, you ask if paragraph 81(1)(h) of the Income Tax Act (“Act”) would apply to exempt these payments from income. We also acknowledge several phone conversations (XXXXXXXXXX/Burnley).

Based on your faxed correspondence and telephone conversations, we understand that there are two types of payments to be considered. You receive a payment from the Province of XXXXXXXXXX, based on an agreement with the XXXXXXXXXX (“Society”), as an independent contractor providing family care for a person with a disability (“care recipient”). The care recipient lives with you in your family home and you provide care which you describe as foster care for adults with disabilities. Individuals needing care are referred to the XXXXXXXXXX. You also receive an amount directly from the care recipient for some personal needs and expenses.

The website of XXXXXXXXXX shows that it is a provincial crown agency, mandated under the XXXXXXXXXX. XXXXXXXXXX funds supports and services through service agencies for adults with developmental disabilities and their families in XXXXXXXXXX. Eligible adults and their families can buy these supports and services directly or access them through service providers or agencies.

An “eligible adult” is described by XXXXXXXXXX as,

“XXXXXXXXXX”

You have a XXXXXXXXXX Agreement with the Society. The purpose of the care arrangement is stated in clause XXXXXXXXXX of the agreement; “the family agrees to provide services for Persons who are referred to the Society by XXXXXXXXXX.” Additionally, there is a XXXXXXXXXX letter of agreement with the Society for services to the care recipient. These agreements outline the payments to be received by the care provider and the expectations and obligations of the family and care provider in providing care for the care recipient in the residential care program.

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.

Paragraph 81(1)(h) of the Act exempts from income social assistance payments received by an individual caregiver for the benefit of a person under the caregiver’s care when all of the following conditions apply:

*     The payment is a social assistance payment ordinarily made on the basis of a means, needs, or income test.

*     The payment is made under a program provided for by a federal, provincial or territorial law.

*     The payment is received directly or indirectly by the caregiver for the benefit of the care recipient.

*     The care recipient is not the caregiver’s spouse or common-law partner or related to the caregiver or the caregiver’s spouse or common-law partner.

*     No family allowance under the Family Allowances Act or any similar allowance provided for by provincial or territorial law is payable in respect of the care recipient for the period for which the social assistance payment is made.

*     The care recipient resides in the caregiver’s principal place of residence, or the caregiver’s principal place of residence is maintained for use as the care recipient’s residence, during the period for which the payment is made.

The term “social assistance” is not defined in the Act. Generally, social assistance means aid provided by a government or government agency on the basis of need. It does not matter if the payments are made directly by a government or government agency or if they are received indirectly through another organization, be it a not-for-profit or for-profit entity. In our view, generally, an individual described in XXXXXXXXXX’s website as eligible for the program would not be capable of financially supporting themselves or living independently. Consequently, it is our opinion that the requirement under paragraph 81(1)(h) of the Act for the social assistance to be ordinarily based on a means, needs or income test, can be satisfied by an implicit test applicable to such person(s).

You mentioned that the care recipient is your XXXXXXXXXX. Individuals are “related” if they are connected by blood relationship, marriage, common-law partnership or adoption. Paragraph 1.13 of Income Tax Folio S1-F5-C1: Related persons and dealing at arm's length states,

“For purposes of the Act, an individual’s niece, nephew, aunt, uncle or cousin is not connected by blood, marriage or common-law partnership or adoption to the individual. This will be the case unless such person is related to the individual because of some other relationship (for example, becoming a child of the individual because of the extended meaning of child as described in ¶1.4(b)).”

Therefore, for the purpose of paragraph 81(1)(h) of the Act, XXXXXXXXXX is not related to XXXXXXXXXX unless there is some other relationship. If the remaining requirements for the exemption under paragraph 81(1)(h) are also met, the social assistance received for the care of the care recipient does not have to be included in income.

You stated that you also receive an amount directly from the care recipient for some personal needs and expenses. The payments received directly for these “comforts or clothing allowances” of the person may be excluded from income if the payments for care are exempt by paragraph 81(1)(h) of the Act and where the direct payment comes from social assistance payments received by the care recipient.  Alternately, the amounts may be considered to be a reimbursement of personal expenses incurred on behalf of the care recipient and would not be included in income. When either of these situations does not apply, the payments might be taxable, but expenses of the care recipient paid by you directly from this amount would be deductible from the amount received and only the net amount would be included in income.

We trust that these comments will be of assistance.

Yours truly,

Pamela Burnley, CPA, CA
Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate

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