2014-0548121E5 social assistance

Principal Issues: What is the proper income tax treatment of per diem amounts paid to a family home provider under a government program by an Agency?

Position: The amounts paid may not be taxable to the extent that the amounts that are paid are for the benefit of the care recipient.

Reasons: All of the conditions of 81(1)(h) of the Income Tax Act must be met.

Author: Shea-Farrow, Nancy
Section: 81(1)(h)

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                                                                                                                                                     2014-054812
                                                                                                                                                     N. Shea-Farrow

January 16, 2015

Dear XXXXXXXXXX:

Re:  Per Diem amounts paid to a Family Home Provider

We are writing in response to your email of September 30, 2014, requesting our comments on the income tax treatment of per diem amounts that are paid to a family home provider under an Ontario Ministry of Community and Social Services (the “Ministry”) program by XXXXXXXXXX (the “Agency”) .

It is our understanding that the Agency is a registered charity that receives funding from the Ministry for a program named XXXXXXXXXX.  The Guidelines you sent us refer to the Ontario Developmental Services Act, which has been repealed and replaced with the Ontario Services and Supports to Promote the Social Inclusion of Persons with Developmental Disabilities Act, 2008 (the “DDA”).  It is therefore our understanding that it is the DDA that provides the legislative authority for funding the program. According to the DDA, a host family residence is a residence of a family, composed of one or more persons, in which a person with a developmental disability who is not a family member is placed by a service agency to reside.  The person with the developmental disability receives care, support and supervision from the host family. 

You have told us that a local family acts as a foster family for the individual being supported by providing food, shelter and a positive family environment.  The family home provider is reimbursed by the individual being supported for rent or room and board and by the Agency with per diem amounts for a positive family environment and teaching of life skills. According to the DDA, a person with a developmental disability is a person that has significant limitations in cognitive functioning and adaptive functioning.  Those limitations originated before the person reached 18 years of age, are likely to be life-long in nature and affect areas of major life activity, such as personal care, language skills, learning abilities and the capacity to live independently as an adult.  An application entity determines if a person is eligible for Ministry-funded adult services and supports. 

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (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 provides an income tax exemption for foster care providers.  Specifically, paragraph 81(1)(h) exempts from income social assistance payments received by an individual caregiver (the “caregiver”) for the benefit of another individual (the “care recipient”) under that caregiver’s care.  The care recipient can be either a child or an adult.  The amount the caregiver receives must meet all the following conditions to be excluded from income:

*     The amount 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 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 must not be 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 can be 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 must be maintained for use as the care recipient’s residence during the period for which the payment is made. If all of the above criteria are met, the social assistance payments received by the caregiver for the benefit of the care recipient is not required to be included in income. 

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.

According to you, the funding under the host family residence program is not determined by an actual financial means, needs or income test of the individual with the developmental disability.  Generally, it is implicit that care recipients for whom funding is received would not pass a means, needs or income test as they are not capable of financially supporting themselves or living independently.  Therefore, 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 adults with a developmental disability that began in childhood.

You do not state in your email the amount of the per diem amounts that are paid to the family home provider.  However in our view, if the per diem amounts that the caregiver receives are for the benefit of the care recipient, and providing all other conditions are met, they will likely qualify for the exemption under paragraph 81(1)(h) of the Act.

We trust our 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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