Principal Issues: 1. Is the taxation of social assistance quantum based?
Position: 1. No
Reasons: 1. It is a question of fact as to whether the requirements to claim the exemption under p. 81(1)(h) are met
XXXXXXXXXX 2011-039655 Robert Dubis November 22, 2011
Dear XXXXXXXXXX :
We are replying to your e-mail of February 17, 2011 regarding the taxation of payments relating to the operation of a group home for high risk youth.
Your letter states you are currently a foster parent receiving tax free payments from the Ministry of Children and Families and were approached by that Ministry to open a group home. Specifically you asked how much income can be received from the Ministry of Children and Families without being taxed.
The taxation of these payments is not solely quantum based but is a question of fact as to whether the payments qualify for the exemption under paragraph 81(1)(h) of the Income Tax Act ("Act"). The exemption under the Act applies to an amount received by an individual caregiver when all of the following conditions apply:
1. The payment is a social assistance payment ordinarily made on the basis of a means, needs, or income test.
2. The payment is made under a program provided for by a federal, provincial or territorial law.
3. The payment is received directly or indirectly by the caregiver for the benefit of the cared-for individual.
4. The cared-for individual is not the caregiver's spouse or common-law partner or related to the caregiver or the caregiver's spouse or common-law partner.
5. No family allowance under the Family Allowances Act or any similar allowance provided for by provincial or territorial law is payable in respect of the cared-for individual for the period for which the social assistance payment is made.
6. The cared-for individual resides in the caregiver's principal place of residence, or the caregiver's principal place of residence is maintained for use as the cared-for individual's residence, during the period for which the payment is made.
It will be a question of fact if all of the above conditions are met in any particular case. The Canada Revenue Agency ("CRA") can only make a determination of whether paragraph 81(1)(h) of the Act is applicable on an individual Caregiver/Cared-for individual basis with reference to all of the above-noted criteria. The types of business or employment relationships accepted by the CRA to which paragraph 81(1)(h) may still apply are provided for in Income Tax Technical News #31 ("ITTN 31"). For your information ITTN 31 can be found on our website at www.cra-arc.gc.ca.
For your information, the Federal Court of Appeal recently released a decision dealing with the taxation of a specific type of payment in Sandra Gallant vs. The Queen. You can view that decision on the Federal Court of Appeal's website as well as the original decision on the Tax Court of Canada on its website.
We trust that the information provided is helpful.
Yours truly,
Sharmini Ratnasingham
Assistant Director
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch