Principal Issues: Do payments to a caregiver for the care of two disabled adults qualify for the income exemption under 81(1)(h)?
Position: No.
Reasons: The organization that is the source of the funds has indicated that the amounts are not paid based on financial considerations. 81(1)(h) requires that the payments be based on the financial means, needs, or income of either the caregiver or the individuals under her care.
XXXXXXXXXX 2010-035748 Andrea Boyle, CGA June 9, 2010
Dear XXXXXXXXXX :
Re: Income Exemption under 81(1)(h)
I am writing in reply to your letter which was referred to Income Tax Rulings in January 2010, in which you asked whether or not the income that you receive as a caregiver would qualify as "social assistance" payments under paragraph 81(1)(h) of the Income Tax Act and you would therefore not be required to include the amounts in computing your income for tax purposes.
You have indicated that you are a caregiver for two adults with developmental needs to whom you are not directly or indirectly related. Both of these individuals reside with you in your home. The guardians of the individuals under your care receive payments for these individuals' care under the Persons with Developmental Disabilities (PDD) Community Governance Amendment Act 2006. Qualification for these payments is based on a physical and developmental needs assessment of the individuals. The guardians of the individuals have contracted with you in an employee/employer relationship to provide care for the individuals and use the funding provided by PDD to compensate you.
The particular situation outlined in your facsimile appears to relate to a factual one, involving specific taxpayers. Written confirmation of the tax implications inherent in particular transactions 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.
To be eligible for the exemption under paragraph 81(1)(h) a social assistance payment must be made on the basis of a means, needs or income test. The test under 81(1)(h) is a financial test; it is not a physical, intellectual, emotional, or behavioural needs test. As discussed in Income Tax Technical News Issue No 31R2, which you have referenced in your letter, each of the means, needs or income tests are financial tests:
- An "income" test is a test based solely on the income of the applicant.
- A "means" test, which is similar to an income test, also takes into account the assets of the applicant.
- A "needs" test takes into account the income, assets and financial needs of the applicant.
Based on the information from the organization funding the payments, Persons with Developmental Disabilities, we understand that the payments are not based on the financial means, needs, or income of either you or the individuals under your care. As such, the requirements for the income exemption under 81(1)(h) have not been met, and the amounts should be reported as employment income.
We trust that these comments will be of assistance.
Yours truly,
Randy Hewlett
Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch