2018-0764761E5 XXXXXXXXXX Disability Support Program Payments

Principal Issues: 1. What is the income tax treatment of a Disability Support Program payment made under a particular provincial government program? 2. Do payments made under the program have to be reported on a T5007 information return? 3. Do recipients have to report the payments received under the Program as income on their income tax return? 4. Will the payments reduce the eligible dependent tax credit a parent may otherwise be entitled to claim in respect of their child who receives payments under the program?

Position: 1. Question of fact, but in this case the payments appear to be social assistance payments. 2. It depends but likely not. 3. It depends but likely not. 4. It depends but likely not.

Reasons: 1. The payments appear to fall within the wording of subsection 56(1)(u). 2. Question of fact, but likely no based on Regulation 233(2)(a). 3. Question of fact but likely no based on CRA administrative practice, as long as the reporting exemption in Regulation 233(2)(a) applies in respect of the payment. 4. No, as long as the reporting exemption in Regulation 233(2)(a) applies in respect of the payment.

Author: Sigouin, Renée
Section: 56(1)(u), 110(1)(f), 118.2(2)

XXXXXXXXXX                                                                                                  2018-076476
                                                                                                                          Renee Sigouin
November 5, 2018

Dear XXXXXXXXXX:

Re:  XXXXXXXXXX Disability Support Program Payments

We are writing in response to your email of June 14, 2018, concerning the income tax treatment of Disability Support Program (the Program) payments made by the XXXXXXXXXX (the Government Agency). Specifically, you have asked whether payments made by the Government Agency under the Program should be reported annually on a T5007, Statement of Benefits and issued to payment or benefit recipients (the Program Recipients). You have also asked whether Program Recipients must report the amount of any payment or benefit received in the year under the Program on their income tax return and if so, whether this would reduce the amount of the eligible dependent tax credit a Program Recipient’s parent could otherwise claim in respect of the Program Recipient.

Our Comments

We understand that the Government Agency administers the Program for the Government of XXXXXXXXXX. The program serves XXXXXXXXXX with XXXXXXXXXX disabilities in a range of XXXXXXXXXX programs. As part of the Program, the Government Agency makes direct payments to the Program Recipients who are in need of financial assistance.

a)    Characterization of payments made under the Program

Paragraph 56(1)(u) of the Income Tax Act (the Act) includes in a taxpayer's income, social assistance payments received in the year that are made on the basis of a means, needs, or income test, except to the extent that such amounts are otherwise required to be included in the taxpayer's income or the income of the taxpayer's spouse or common-law partner.

The term "social assistance" is not defined in the Act but generally means aid provided by governments or government agencies, although it can also be provided by other organizations (such as a charity), on the basis of need. Social assistance payments generally include payments made to individuals whose income is inadequate or non-existent owing to disability, unemployment, old age or other similar factors.  The CRA considers each of the “means, needs or income test[s]" to be financial tests, where an "income" test is based solely on an applicant’s income, the "means" test considers an applicant’s income and assets, and the "needs" test considers an applicant’s income, assets, and financial needs.

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. As a result, there are no income tax implications related to the income inclusion other than it may affect certain income-tested benefits and the calculation of certain tax credits.

We understand that in order to be eligible for benefits under the Program, a person with a disability must satisfy the criteria outlined in the comprehensive Program Policy. Among other criteria, an applicant must provide a medical assessment from their attending physician or nurse practitioner and have a diagnosis that confirms that the individual has XXXXXXXXXX disability, XXXXXXXXXX, the severity of which meets the threshold provided under the Program Policy. Applicants must undergo a functional assessment to determine their ability to carry out activities XXXXXXXXXX. Information gathered through these assessments inform the determination of the applicant’s Program eligibility and the level of support and services needed.

A financial assessment is conducted to determine whether the income and assets available to an applicant are sufficient to meet the costs associated with the level of supports and services needed by an applicant. XXXXXXXXXX.

Based on our review of the Program Policy and the eligibility requirements outlined therein, it is our view that the Program payments are “social assistance” that is “made on the basis of a means, needs, or income test” for purposes of paragraph 56(1)(u) of the Act.

b)    Reporting obligations for Payer

Subsection 233(1) of the Income Tax Regulations (the Regulations) requires every person who makes a social assistance payment to report the payment on a T5007 information return (consisting of a T5007 Summary and all related T5007 slips), unless the payment is exempt from reporting. The types of payments that are exempt from reporting are listed in subsection 233(2) of the Regulations and include, in particular, a payment that "is in respect of medical expenses incurred by or on behalf of the payee”. The types of medical expenses contemplated under the exemption are those meeting the requirements of an “eligible medical expense” as described in paragraphs 1.18 to 1.142 of Income Tax Folio S1-F1-C1, Medical Expense Tax Credit. For a complete list of payments that are exempt from reporting under subsection 233(2) of the Regulations, see Chapter 4 of Guide T5007 – Return of Benefits.

It is a question of fact whether each payment made by the Government Agency to a Program Recipient will meet the reporting exemption for medical expenses described above. We have not conducted a comprehensive review of the Program. However, based on our review of available information, including especially our understanding of the comprehensive and strict eligibility requirements for the Program and the nature of the supports and services provided, the Program Payments appear to be made in respect of medical expenses that are exempt from reporting on a T5007 information return pursuant to subsection 233(2) of the Regulations.

c)    Reporting obligations for the Recipient

It is the CRA’s administrative practise not to require social assistance recipients to include in their income (that is, report on their income tax return) payments that were not required to be reported on a T5007 information return. Social assistance payments that are not included in a Program Recipient’s income will not affect the calculation of income-tested benefits the Program Recipient is eligible to receive.

d)    Calculation of the eligible dependant tax credit

You have asked whether payments made by the Government Agency to a Program Recipient would reduce the amount of the eligible dependant tax credit a Program Recipient’s parent could claim in respect of their child for the year.

Payments that are exempt from reporting on a T5007 information return that have not been reported in the income of a Program Recipient in accordance with the CRA’s administrative policy, will not reduce the amount of the eligible dependent tax credit a parent may claim in respect of their child who is the Program Recipient.

Other comments

The Program Recipient should be advised that medical expenses incurred by an individual that otherwise meet the requirement as an eligible medical expense for purposes of the medical expense tax credit, cannot be claimed to the extent that the individual is entitled to be reimbursed for that expense, pursuant to paragraph 118.2(3)(b) of the Act. An exception applies to the extent that the amount of the reimbursement is required to be included in computing income and is not deductible in computing taxable income. This is described in more detail in paragraph 1.16 of Income Tax Folio S1-F1-C1, Medical Expense Tax Credit.

As a result, the payments received by a Program Recipient under the Program would be considered a reimbursement for the purposes of paragraph 118.2(3)(b) of the Act such that the individual would only be eligible to claim the medical expense tax credit for medical expenses incurred in excess of those reimbursed under the Program.

We trust that these 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

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