Principal Issues: Whether the funding received from XXXXXXXXXX for the care of the caregiver's sister is exempt under 81(1)(h)
Position: The income is not exempt under 81(1)(h). It may be considered social assistance under 56(1)(u), with a corresponding deduction under paragraph 110(1)(f), or it may be included in income as business income. The correct determination can only be made after a review of all the relevant facts.
Reasons: The caregiver and the cared-for individual are related.
XXXXXXXXXX 2010-038449 Ann Townsend
January 7, 2011
Dear XXXXXXXXXX :
Re: Social Assistance received by caregiver for the care of her sister
I am writing in response to your letter dated October 14, 2010 asking whether, as an operator of a home certified to care for adults with special needs, the funding you receive from XXXXXXXXXX to care for your disabled sister is exempt from tax under paragraph 81(1)(h).
Written confirmation of the tax implications inherent in a particular transaction is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to offer the following general comments, which may be of assistance.
All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").
Paragraph 81(1)(h) exempts from income social assistance payments received by foster parents for the care of foster children that reside in their principal residence and by caregivers of developmentally handicapped adults that reside in the caregiver's principal residence. In order to qualify for the exemption, the payments must be received under a program provided for by an Act of Parliament or a law of a province; the caregiver and the cared-for individual cannot be related; and the social assistance must ordinarily be made on the basis of a means, needs or income test.
In your situation, the cared-for individual is the caregiver's sister. Therefore, any funding received to provide care for your sister does not meet the requirements for the exemption under paragraph 81(1)(h).
The payments received may be considered social assistance under the Act. Paragraph 56(1)(u) includes in income social assistance payments received in a year that are made on a basis of a means, needs or income test. Although the social assistance payments are included in income, there is an offsetting deduction under paragraph 110(1)(f) of the ITA that results is no income tax payable on the receipt of the social assistance payments. Social assistance payments received under paragraph 56(1)(u) are reported on information slip T5007.
Alternatively, the payments received for the care of your sister may be taxable to you as income from a business in which case you would be entitled to a deduction for the expenses incurred to earn that business income.
The determination of the correct tax treatment can only be made after a review of all the relevant facts and documentation in this case. Your local Tax Services Office ("TSO") is in the best position to make this determination and should be contacted to complete the review and advise you on the correct tax treatment.
I trust the foregoing is of assistance.
Yours truly,
Guy Goulet CA, M.Fisc.
A/ Manager
for Acting Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch