2024-1016421E5 XXXXXXXXXX Disability Supports Payments

Principal Issues: Whether payments made under the XXXXXXXXXX Disability Supports Program to persons with disabilities (PWDs) would be included in the PWD's income.

Position: Likely yes, to the extent that the payments do not relate to eligible expenses under the medical expense tax credit or other reporting exceptions under subsection 233(2) of the Regulations.

Reasons: The payments are based on an income test and, therefore, would fall under the ambit of paragraph 56(1)(u). It is the CRA's position that amounts described in subsection 233(2) of the Regulations (which are not required to be reported by a payer on a T5007) do not need to be reported as income by the recipient.

Author: El-Kadi, Randa
Section: 56(1)(u); 56(2); 110(1)(f); Reg. 233(1) & 233(2)

XXXXXXXXXX                                                                 2024-101642
                                                                                         Randa El-Kadi

August 26, 2024                              

Re: Individualized Funding Payments under the XXXXXXXXXX Disability Support Program

This letter is in response to your email of March 11, 2024, regarding the tax treatment of Individualized Funding Payments (the Payments) that eligible individuals will be receiving from the XXXXXXXXXX Department of Community Services (the Government Agency) once the existing XXXXXXXXXX Disability Support Program (the Program) is expanded (the New Program). You indicate that eligibility for Payments under the Program and New Program is based on a confirmed medical diagnosis that is consistent with specific categories of disabilities, a functional assessment that shows a need for support in two or more activities of daily living and instrumental activities of daily living, in addition to a financial test (means/income test).

It is your view that Payments under the New Program are social assistance payments that are based on a means, needs, or income test, and that they would be excluded from the recipient’s income pursuant to paragraph 81(1)(h) of the Income Tax Act (the Act).

We understand that the Government Agency currently administers the Program for the Government of XXXXXXXXXX, and it will continue to administer it once it is expanded. Both the Program and New Program serve children, youth and adults with intellectual disabilities, long-term mental illness and physical disabilities (collectively referred to as PWDs).

Payments under the new Program are made directly or indirectly to PWDs. In the latter case, the Payments may be held in informal trust by a third party such as a family member, contracted administrative agency, or contracted service provider. The Payments consist of a supports component and a basics and allowances component. The supports component allows PWDs to pay for such things as support workers, courses and workshops to support the PWDs’ wellbeing and participation in the community. The basics and allowances component allows PWDs to cover disability-related costs that are not directly supports-related, such as transportation to and from medical appointments, medical supplies, and non-prescription medications.

It is our understanding that PWDs (or their families, where applicable) must report to the Government Agency on a regular basis on how the Payments they received were spent. They must also retain records relating to any expenses that the Payments (including advance payments) they received under the New Program were used for. Any funds left over at the end of the fiscal period must be either repaid to the Government Agency or rolled over into the PWD’s next budget for supports.

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 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

Generally, paragraph 81(1)(h) of the Act applies to payments related to foster care, and 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.

Although the Payments made under the New Program appear to be social assistance payments ordinarily made on the basis of a means, needs or income test, it is our understanding that they are not of the nature of payments for foster care. Therefore, the amounts would not meet the requirements of paragraph 81(1)(h) of the Act.

On the other hand, paragraph 56(1)(u) of 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. 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 “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.

We agree with your conclusion that the Payments under the New Program are likely social assistance payments. In addition, it appears that the Payments are made on the basis of a means, needs or income test. Therefore, it is our view that the Payments would be included in the income of a recipient under paragraph 56(1)(u) 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. 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.

Subsection 233(1) of the Income Tax Regulations (the Regulations) requires every person who makes a social assistance payment that is described in paragraph 56(1)(u) of the Act to report the payment on Form T5007, Statement of Benefits, unless the payment falls under one of the exceptions from reporting that are listed in subsection 233(2) of the Regulations. As described in subsection 233(2) of the Regulations, a payment that does not have to be reported on a T5007 is a payment that:

(a) is in respect of medical expenses incurred by or on behalf of the recipient;

(b) is in respect of child care expenses, as defined in subsection 63(3) of the Act, incurred by or on behalf of the recipient or a person related to the recipient;

(c) is in respect of funeral expenses in respect of a person related to the recipient;

(d) is in respect of legal expenses incurred by or on behalf of the recipient or a person related to the recipient;

(e) is in respect of job training or counselling of the recipient or a person related to the recipient;

(f) 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; or

(g) is not a part of a series of payments.

It is a question of fact whether a particular payment meets any of the exclusions listed in subsection 233(2) of the Regulations. 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 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
Legislative Policy and Regulatory Affairs Branch

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