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 the payments made by a government program, directly to caregivers to provide support services to adults with developmental disabilities, will be exempt from income tax.
Position: Yes, if the amounts that the caregiver receives are for the benefit of the care recipients, and provided that all the other required conditions in paragraph 81(1)(h) are met, then these amounts will likely qualify for the exemption under paragraph 81(1)(h) of the Act.
Reasons: All the conditions of paragraph 81(1)(h) of the Act must be met.
Author: Underhill, Cynthia
Section: ITA: 81(1)(h)
January 8, 2020
Re: Social assistance payments received for in-home care of disabled adults
This is in reply to your correspondence dated April 9, 2019, which was forwarded from the XXXXXXXXXX Tax Centre, asking whether the payments made by the XXXXXXXXXX to you (the “caregiver”) to provide support services to adults with developmental disabilities (the “care recipients”) are exempt from income tax under paragraph 81(1)(h) of the Income Tax Act (the Act).
It is our understanding from the XXXXXXXXXX website that the XXXXXXXXXX is a registered charitable non-profit agency that relies on funding, in part, from XXXXXXXXXX Program in XXXXXXXXXX. XXXXXXXXXX website also provides that you are an independent contractor. It is also our understanding from the XXXXXXXXXX website that payments received under the XXXXXXXXXX Program are made under a program provided for by a provincial law (i.e., XXXXXXXXXX).
Based on the XXXXXXXXXX and XXXXXXXXXX’s websites, and a telephone conversation on July 9, 2019 (Krantz/XXXXXXXXXX), it was confirmed that:
* the payments under the XXXXXXXXXX are made under a program provided for by a provincial law;
* the payments under the XXXXXXXXXX are made directly by XXXXXXXXXX or indirectly through third part-party agencies to you for the benefit of the care recipient;
* as a caregiver you provide support services for care recipients;
* the care recipient resides in your principal residence;
* the care recipient is not related to either you or your spouse;
* you are an independent contractor; and
* to be eligible for assistance the care recipient must have a developmental disability that began in childhood.
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 70-6R9, Advance Income Tax Rulings and Technical Interpretations.
Paragraph 81(1)(h) of the Act excludes from income social assistance payments that an individual caregiver receives for the benefit of another individual (the “care recipient”) under the 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 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 Allowance 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.
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 a need. It does not matter if the social assistance 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.
The XXXXXXXXXX website confirms that the payments made by the XXXXXXXXXX is not determined by an actual financial means, needs or income test of the person with developmental disabilities, but by a developmental assessment. However, it is implicit that individuals who receive funding under XXXXXXXXXX would not pass a means, needs or income test as they are not 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, is satisfied.
As noted above, the care recipient must reside in the caregiver’s principal place of residence, or the residence must be maintained for the care recipient’s use. An individual’s principal place of residence is the place where the individual regularly, normally or customarily lives. This requirement is not met in situations where the caregiver and the care recipient do not share common living areas in the residence.
Therefore, provided that all the requirements under paragraph 81(1)(h) of the Act outlined above are met, it is our view that payments received by the caregiver from the XXXXXXXXXX would qualify for the exemption under paragraph 81(1)(h) of the Act.
We trust our comments will be of assistance to you.
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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