Principal Issues: [TaxInterpretations translation] 1. What is the tax treatment of the sums to be paid under the PAFU of the Ministry of Employment and Social Solidarity (the "MESS")?
2. Does the financial assistance have to be deducted at source?
3. Is the MESS required to issue information slips for amounts paid under the PAFU program?
Position: 1. Financial assistance under the PAFU is a social assistance benefit to be included in the net income of recipients. Nevertheless, these recipients will be entitled to the offsetting deduction under paragraph 110(1)(f) of the Income Tax Act (the "Act") in computing their taxable income.
2. No. A deduction at source is not necessary.
3. Yes, with some exceptions. Amounts under $500 and amounts that are not part of a series of payments do not have to be included on Form T5007.
Reasons: 1. Based on a review of the PAFU and its specific eligibility requirements, financial assistance will be paid following a means, needs or income test of recipients under paragraph 56(1)(u) of the Act. The English version of paragraph 56(1)(u) of the Act uses the expression "means, needs or income", while the French version uses the word "et" between the words besoins and revenu. Where the two versions of the Act do not use exactly the same terms, the broader meaning, which is more consistent with the legislative intent and purpose of the Act, should be chosen in this case. The consistent wording of the expression "means, needs or income" in the English version of paragraph 56(1)(u), which has remained the same since the paragraph was introduced into the Act, must be used. In fact, the French version of the T5007 Guide- Return of Benefits uses the expression "les ressources, les besoins ou le revenu" of beneficiaries on a few occasions. In addition, the French version of paragraph 110(1)(f) of the Act also uses the word "ou" between the terms besoins and revenu, referring to the application of paragraph 56(1)(u).
2. Section 153 does not apply.
3. Subsection 233(1) of the Income Tax Regulations (the "Regulations") requires every person who makes a payment described in paragraph 56(1)(u) of the Act to make an information return in prescribed form. The exceptions to the requirement to file an information slip, which are found in subsection 233(2) of the Regulations, are for an amount made as part of a series of payments the total of which does not exceed $500 or an amount that is not part of a series of payments.
XXXXXXXXXX 2008-026586 Lucie Allaire, Advocate, CGA, D. Fisc. March 18, 2008
Dear Sir,
Subject: Emergency Financial Assistance Program
This is further to your e-mail of January 18, 2008 in which you wish to know the tax treatment of amounts paid under the Programme d'aide financière d'urgence (PAFU) [Emergency Financial Assistance Program] as established under the provisions of Chapter IV of Division II of the Individual and Family Assistance Act1 (the "IFAA").
You also wish to know if the Ministry of Employment and Social Solidarity (the "MESS") is required to make deductions at source from amounts paid under the PAFU and to prepare an information form regarding these amounts.
Facts
The objective of the PAFU is to provide assistance to people who are not covered by the Civil Protection Act or by another government program and who find themselves in an emergency situation, particularly in the case of geopolitical events. The PAFU is intended to provide temporary or special-purpose financial assistance to meet the urgent needs of citizens affected by a particular political context and whose income is insufficient. It covers not only living expenses, but also covers, in whole or in part, the payment of specific costs directly resulting from the emergency situation or to meet urgent needs.
Financial support to cover living expenses under the PAFU may be provided in the form of a lump sum or periodic payments. If financial assistance is paid periodically, it may not exceed, on a monthly basis, $838 for one adult and $1,253 for two adults. It also includes $100 per dependent child, minor or adult.
Eligibility for the PAFU does not depend on the liquid assets or value of property of an adult or their family members. However, income generated from such assets will be considered. In addition to an exclusion of $300 per month applicable to all income, the determination of periodic financial assistance payments excludes the following main types of income: benefits paid under a last-resort financial assistance program, child support payments and amounts granted as child tax benefits, as well as the totally excluded income provided for in section 111 of the Regulation respecting assistance to individuals and families. Financial assistance for the month of application is granted for the full month regardless of the date of application.
In addition to the financial criteria mentioned above, the individual must meet each of the following conditions in order to be eligible for the PAFU:
1. Unless there are specific exceptions, meet the eligibility requirements set out in sections 26 and 27 of the Act, i.e., be a resident of Quebec and be a Canadian citizen, a registered Indian, a permanent resident or a person on whom refugee protection is conferred.
2. Be affected by an emergency situation;
3. Satisfy the specific eligibility requirements related to an emergency situation as determined by the MESS.
Our Comments
By virtue of paragraph 56(1)(u) of the Income Tax Act (the "Act"), a taxpayer and the taxpayer’s spouse or common-law partner must include in computing income amounts received as social assistance benefits paid on a means, needs or income test.
In order for this PAFU assistance to fall within paragraph 56(1)(u), two basic requirements must be satisfied.
First, it is necessary that the payment constitutes social assistance for the recipient. In order to define what constitutes social assistance for the purposes of paragraph 56(1)(u) - since the term is not defined therein - the Canada Revenue Agency ("CRA") has already referred to Part V of the Federal-Provincial Fiscal Arrangements Act2 which defines the term "social assistance" as "aid in any form to or in respect of a person in need”. We also refer to the definition of the term "assistance" as set out in le Nouveau Petit Robert3: [TaxInterpretation’s translation] assistance given to persons in need. We are therefore of the view that financial assistance from the PAFU, since it is paid to Quebec residents who are in financial need, constitutes social assistance for the purposes of paragraph 56(1)(u).
Second, the payment is only to be made to the recipient following a means, needs or income test. Based on the information you have provided, we are of the view that the amounts paid as living expenses under the PAFU are social assistance benefits that come directly within paragraph 56(1)(u). With respect to the payment of specific expenses, the same conclusion must be reached because they are also paid as a result of a means, needs or income test of the recipient.
The amounts received must therefore be included in the income of the persons receiving them. However, if the recipient lives with a spouse or common-law partner at the time the payments are received, the payments will be included in computing the income of the person with the higher income.
On the other hand, a taxpayer who receives social assistance benefits for a particular year may claim an offsetting deduction under paragraph 110(1)(f) equal to the amounts the taxpayer received for that year.
Subsection 233(1) of the Income Tax Regulations (the "Regulations") requires every person who makes a payment described in paragraph 56(1)(u) of the Act to make an information return in prescribed form in respect of the payment. As such, we are of the view that the MESS will generally be required to complete Form T5007 in respect of financial assistance paid under the PAFU, subject to the comments below.
Certain exceptions to the requirement to report amounts are set out in subsection 233(2) of the Regulations. For example, any amount made as part of a series of payments the total of which does not exceed $500, or any amount that is not part of a series of payments, is not reported in a T5007. In this regard, CRA's policy considers amounts so excluded from T5007 as not having been included in income under paragraph 56(1)(u).
Finally, a person who makes a payment to a recipient under the PAFU will not be required to make source deductions from that payment. These comments are not advance income tax rulings and, as stated in paragraph 22 of Information Circular 70-6R5 of May 17, 2002, are not binding on us.
Best regards,
Randy Hewlett
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.
ENDNOTES
1 R.S.Q., Chapter A-13.1.1
2 C.Q.L.R., 1985, ch. F-8.
3 Nouvelle édition, Dictionnaires Le Robert, Paris, 2000