2017-0704801E5 Social Assistance - Ontario Basic Income Pilot
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.
Principal Issues:
Whether payments made under the Ontario Basic Income Pilot program are considered social assistance?
Position:
Most likely yes.
Reasons:
They are based on an income test.
Author:
Wirag, Eric
Section:
56(1)(u); 110(1)(f); Reg 233(2)
XXXXXXXXXX
2017-070480 Eric Wirag, CPA, CMA
June 26, 2017
Dear XXXXXXXXXX:
Re: Ontario Basic Income Pilot
This is in reply to your email of May 23, 2017, concerning the income tax treatment of payments made under the Ontario Basic Income Pilot (the “Pilot”). Specifically, you are asking for confirmation that payments made to participants of the Pilot would be social assistance payments made on the basis of a means, needs or income test as described in paragraph 56(1)(u) of the Income Tax Act (the “Act”).
You have indicated that the Pilot will be three years in length. Participants of the Pilot will be chosen at random, from residents of three areas in Ontario, and will be restricted to those between the ages of 18 and 64 who have lived in the selected regions for the previous twelve months.
You also indicate that the amount paid to eligible participants will depend on their income, based on information reported in their income tax returns for the previous year.
You have stated that there is a maximum annual amount that will be paid that will depend on whether the individual is single or part of a couple, with an additional amount paid if a person has a disability. The maximum annual amount will be reduced by the individual’s employment or other types of income (such as Employment Insurance benefits), as reported in the previous year’s income tax return.
You have also indicated that the benefit payments will be made monthly, and will be responsive to changes in a participant’s circumstances, such as changes in earnings, family composition, or disability status.
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 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
Paragraph 56(1)(u) of the Act requires that social assistance payments received in the year and made on the basis of a means, needs, or income test are to be included in a taxpayer’s income unless such amounts are required to be included in the taxpayer’s income or the income of the taxpayer’s spouse or common-law partner under a different provision of the Act. Amounts included in a taxpayer’s income under paragraph 56(1)(u) are offset by a matching deduction under paragraph 110(1)(f) of the Act, so that there are no income tax implications related to this income inclusion other than it may affect certain income-tested benefits.
Since the term “social assistance” is not defined in the Act, we look to the meaning of the term as it is ordinarily defined and understood in order to determine whether paragraph 56(1)(u) of the Act applies in a particular situation. Social assistance generally means aid provided by a government or government agency (although it can be provided by other organizations) on the basis of need.
To be included in income under paragraph 56(1)(u) of the Act, the payment must be made on the basis of a means, needs or income test. We consider each one of these tests to be a financial test and they are described as:
1. An “income” test, which is a test based on the income of the applicant.
2. A “means” test, which is similar to an income test, but also takes into account the assets of the applicant.
3. A “needs” test, which takes into account the income, assets and financial needs of the applicant.
Based on the information provided, it is our view that the payments made under the Pilot are based on an income test, and therefore would be considered to be social assistance payments as described in paragraph 56(1)(u) of the Act.
When an organization concludes that it has made social assistance payments to an individual, subsection 233(1) of the Income Tax Regulations (the “Regulations”) requires the organization that provided the social assistance to report the payment on Form T5007, Statement of Benefits.
However, subsection 233(2) of the Regulations provides specific exceptions to the general filing requirements. Particularly, paragraph 233(2)(f) exempts a payment that “is paid in a particular year as a part of a series of payments, the total of which in the particular year does not exceed $500”. Where amounts are excluded from the reporting requirements by subsection 233(2) of the Regulations, it is the practice of the Canada Revenue Agency not to require the excluded amounts to be included in income of the recipient, thereby not affecting the calculation of income-tested benefits.
We trust our comments will be of assistance.
Yours truly,
Lita Krantz, CPA, CA
Manager, Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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