Principal Issues: 1. Are payments by foster parents to respite care providers taxable?
2. If so, are foster parents required to have a business number, remit source deductions and issue T4s?
Position: 1. Yes 2. A question of fact
Reasons: Legislation and previous positions
XXXXXXXXXX 2011-039464 George A. Robertson, CMA September 1, 2011
Dear XXXXXXXXXX :
Re: Social Assistance - Respite Care payments
This is in response to your February 2, 2011 request concerning the tax treatment of respite care payments made by foster parents, specifically;
- Are payments by foster parents to respite care providers taxable to the respite care providers?
- If so, are foster parents required to have a business number, remit source deductions and issue T4s?
- Our understanding of the facts presented is:
- The foster parent receives non-taxable social assistance funds from the Ministry of BC for the autistic child in the foster parent's care.
- From the funds received from the Ministry, the foster parent pays other caregiver individuals [respite care providers] for respite care, which they understood to be non-taxable income to those individuals.
- All of the care for the child is in the foster parent's home.
- The foster parent recently had to increase the amount of respite care needed for the child for the education part of his care. The foster parent pays these additional respite care providers a hourly amount and reimburses for mileage and program supplies. The child is schooled in the foster parent's home but does go out of the home occasionally on field trips to a gym, the swimming pool, library, etc.
Our comments
Generally, paragraph 81(1)(h) of the Income Tax Act (the Act) exempts from income, social assistance payments to the caregiver for the benefit of a cared-for individual under the caregiver's care. The cared-for individual can be either a child or an adult. The following 6 criteria must all be met for the social assistance [respite care] amount to be exempt from inclusion as income.
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.
In our view, respite care amounts paid by foster parents would not qualify for the noted exemption from income, where the cared-for individual did not reside in the respite care provider's principal place of residence. The respite care provider must include these respite care amounts as income.
If the respite care provider is an employee of the foster parent, the foster parents would be required to have a business number, remit source deductions and issue T4s. If the respite care provider is a business or a self employed individual, the respite care provider must include the respite care amounts as income. For more information on employer-employee relationships, see the pamphlet called Employee or Self-employed? (RC4110) which is available at http://www.cra-arc.gc.ca/E/pub/tg/rc4110/rc4110-e.html.
We trust that these comments will be of assistance.
Yours truly,
Sharmini Ratnasingham
Assistant Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch