2024-1010461E5 Payments under kinship agreements et al

Principal Issues: What will be the tax treatment of payments received by caregivers under kinship care agreements and customary care agreements with Child and Youth Services, XXXXXXXXXX Families?

Position: The payments are unlikely to be considered income from a source.

Reasons: We are advised that the payments in question are not based on a means, needs or income test of either the caregiver or the child under their care.

Author: El-Kadi, Randa
Section: 56(1)(u); 81(1)(h); 81(1)(h.1); 110(1)(f)

XXXXXXXXXX                                                                     2024-101046
                                                                                            Randa El-Kadi

July 10, 2024

Re: Tax treatment of payments to kinship and customary caregivers

Dear XXXXXXXXXX,

This letter is in response to your email of March 6, 2024, regarding the tax treatment of proposed payments (the Payments) that will be made by Child and Family Services (the Agencies) in the province of XXXXXXXXXX to child caregivers who enter into certain agreements with the Agencies.

We understand that Bill 32, An Act Respecting Child and Family Services, proposes amendments to several Acts, including The Child and Family Services Act (CFSA). The proposed amendments to the CFSA include the introduction of kinship care agreements that make provision for a child to reside with an adult member of a child’s family or an adult who has a significant relationship with the child or with the child’s parent or guardian. The proposed amendments also include the introduction of customary care agreements that make provision for an Indigenous child to reside with someone other than the Indigenous child’s parent or guardian (a “customary caregiver”) so that the child receives care in a way that recognizes and reflects the unique customs of the child’s Indigenous community.

These types of agreements would allow parents to maintain guardianship, while having their child voluntarily cared for and residing with another caregiver. Once the proposed amendments to the CFSA are enacted, the Agencies intend to make payments to caregivers under the agreements mentioned above, similar to what they currently do to foster parents. You have specified that the Payments are not based on a means, needs or income test of either the caregiver or the child in their care, and that the province’s intent is to ensure that payments to caregivers under agreements are excluded from their income, in the same way that payments to foster parents are.

Our comments    

This technical interpretation provides general comments about the provisions of the Income Tax 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 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

The determination of the income tax treatment of payments such as those described in your e-mail involves a question of fact that can only be determined after reviewing all of the relevant documentation and agreements related to the Payments. However, based on the limited information provided to us, we are prepared to offer the following general comments, which may be of assistance.

Generally, payments related to foster care fall under paragraph 81(1)(h) of the Act which 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 under paragraph 81(1)(h):

* The payment is a social assistance payment ordinarily made on the basis of a means, needs, or income test;

* 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 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;

* 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; and

* 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 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.

In addition to being a social assistance payment, the payment must be “ordinarily 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 follows:

* An “income” test is based solely on the income of the individual.

* A “means” test is similar to an income test, but also takes into account the assets of the individual.

* A “needs” test takes into account the income, assets and financial needs of the individual.

According to paragraph 251(2)(a) of the Act, related persons are individuals connected by blood relationship, marriage, common-law partnership or adoption. Paragraph 251(6)(a) refers to a blood relationship as being that of a parent and a child (or other descendant, such as a grandchild or a great-grandchild), or a brother and a sister. Paragraph 1.13 of Income Tax Folio S1-F5-C1: Related persons and dealing at arm's length states “For purposes of the Act, an individual’s niece, nephew, aunt, uncle or cousin is not connected by blood, marriage or common-law partnership or adoption to the individual. This will be the case unless such person is related to the individual because of some other relationship (for example, becoming a child of the individual because of the extended meaning of child).”

Where all of the conditions listed above are not met, then the payments would not fall under the exclusion found in paragraph 81(1)(h). For example, based on the limited information provided, it does appear that payments made to caregivers would likely be considered to be social assistance payments. But where a social assistance payment is not made on the basis of a means, needs or income test, the requirements of paragraph 81(1)(h) would not be met.

Similarly, where the care recipient is the caregiver’s spouse or common-law partner or is related to the caregiver’s spouse or common-law partner, as described above, the requirements of paragraph 81(1)(h) would not be met.

Additional provisions related to social assistance payments are also found under paragraph 56(1)(u) and paragraph 81(1)(h.1). In both cases the social assistance payments would also need to be made on the basis of a means, needs or income test for those provisions to apply.  

Where a social assistance payment is not made on the basis of a means, needs or income, the payment will likely not constitute income from a source, and therefore, will not be included in the recipient’s income or impact their income-tested benefits.

We trust that these comments will be of assistance to you.

Yours truly,

Eric Wirag, CPA, CMA
Manager, Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate

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