2022-0936461I7 Relief measure program

Principal Issues: What is the tax treatment of payments to individuals, under the Government of XXXXXXXXXX potential relief measure program?

Position: Likely included in the recipients income under paragraph 56(1)(u) with an offsetting deduction from taxable income, pursuant to paragraph 110(1)(f).

Author: Brennan, Christopher
Section: 56(1)(u), ITR 233(1), ITR 233(2)

                                                                               May 19, 2022

Legislative Policy Directorate                                 HEADQUARTERS
Provincial Legislative Affairs Section                      Income Tax Rulings Directorate
                                                                               Chris Brennan, CPA CA

Attention: Cornelis Rystenbil                                  2022-093646

Re: Government of XXXXXXXXXX potential relief measure program

This is in reply to your email requesting our guidance on the tax treatment of a potential relief measure program that may be offered by the Government of XXXXXXXXXX.

The Social Development Department of the XXXXXXXXXX has been asked to look at the possible design of a relief measure program to help those in need with the rising fuel costs and cost of living. Currently, there is limited information on the potential relief measure program. It is our understanding that the eligibility criteria to receive assistance under the potential relief measure program would include an income test. The assistance may be provided as a one-time payment or a series of payments.

Given the limited information available, we are prepared to provide the following general information.

Paragraph 56(1)(u) of the Income Tax Act (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) of the Act 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.

The first requirement in paragraph 56(1)(u) of the Act is that the amount must be “social assistance”. 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. Based on the limited information provided, the assistance under the potential relief measure program would likely fall within the general meaning of social assistance.

The second requirement in paragraph 56(1)(u) of the Act is that 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 solely 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 takes into account the income, assets and financial needs of the applicant.

The information provided states that the eligibility criteria for the potential relief measure program would include an income test. Therefore, the assistance under the potential relief measure program would likely be considered a social assistance payment included in the income of the recipient pursuant to paragraph 56(1)(u) of the Act. As noted above, this amount would be 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

When an organization concludes that it has made social assistance payments as described in paragraph 56(1)(u) of the Act to an individual, subsection 233(1) of the Income Tax Regulations (Regulations) requires the organization that provided the social assistance to report the payment on Form T5007, Statement of Benefits (T5007) unless the payment is specifically excluded from this reporting requirement.

Subsection 233(2) of the Regulations excludes from the reporting requirement, among other things, payments that are not a part of a series of payments, or that are paid in a year as part of a series of payments but total less than $500 in the year. For the purpose of this Regulation, we generally consider a series of payments to mean a number of similar payments made in a particular year to an individual under the same program of a government or other organization. It is the Canada Revenue Agency’s policy that where a T5007 is not required to be issued to the recipient of the social assistance payment, the payment is not required to be reported on the recipient’s income tax and benefit return. As a result income tested benefits are not impacted.

Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the taxpayer. The taxpayer may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca. A copy will be sent to you for delivery to the taxpayer.

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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