Principal Issues: [TaxInterpretations translation] (1) Is lump sum funding under the PAFU program subject to paragraph 56(1)(u)? (2) Is the MESS required to issue information slips to persons who will receive financial assistance?
Position: (1) Yes, when paid following a means, needs or income test. (2) No.
Reasons: (1) Based on the information available to us, financial assistance paid in a lump sum will generally be paid after a needs test, which is sufficient to meet the criterion of "paid after a means, needs or income test". In this regard, the English version of the Act should be used.
(2) Paragraph 233(2)(g) of the Regulations provides that a T5007 slip is not required to be filed in respect of financial assistance paid as a lump sum because it is a single payment that is not part of a series of payments.
XXXXXXXXXX 2009-034574 Pierre-Luc Meunier February 2, 2010
Dear Sir,
Subject: Programme d'aide financière d'urgence [Emergency Financial Assistance Program] ("PAFU")
This is in response to your letter of October 21, 2009 and concerns the tax implications arising from the payment of amounts by the Ministry of Employment and Social Solidarity (the "MESS") under the PAFU. It follows up on Interpretation F2008-0265861E5, issued by our Directorate on March 18, 2008, which dealt with the same subject.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
In Interpretation 2008-0265861E5, the Income Tax Rulings Directorate concluded that amounts paid under the PAFU represented social assistance benefits under paragraph 56(1)(u) and that the MESS should generally file a Form T5007 in respect of these amounts, subject to certain regulatory exceptions.
Facts
You have attached a copy of the PAFU regulatory framework to your letter. This version of the regulatory framework differs slightly from the one submitted to us in interpretation F2008-0265861E5. Indeed, the current PAFU regulatory framework provides, inter alia, that financial assistance paid in the form of a lump sum payment is made without regard to the means of the single adult or family receiving assistance.
In a telephone conversation with XXXXXXXXXX, the latter also informed us that the lump sum payment of financial assistance could be made without a means, needs, or income test.
Therefore, you wish to know whether the position that the ITRD issued in Interpretation 2008-0265861E5 would also be applicable to lump sum payments made under the provisions of the revised regulatory framework.
Our Comments
As noted in Interpretation F2008-0265861E5, the financial assistance to be paid under the PAFU is a social assistance benefit, which meets one of the requirements of section 56(1)(u).
The second requirement for a benefit to fall within paragraph 56(1)(u) is that it must be "paid after a means, needs or income test". The French version of paragraph 56(1)(u) uses the phrase "après examen des ressources, des besoins et du revenu", while the English version uses the phrase "on the basis of a means, needs or income test".
We are of the view that the English version of paragraph 56(1)(u) is the one to be applied since it is consistent with the wording of paragraph 110(1)(f), which uses similar expressions in both languages, namely the expression "après examen des ressources, des besoins ou du revenu" in the French version and the expression "on the basis of a means, needs or income test" in the English version. Paragraph 110(1)(f) provides, inter alia, for a deduction in computing taxable income of social assistance benefits included in income under paragraph 56(1)(u). Thus, a social assistance benefit paid after consideration of only one of the three parameters would be considered to be paid "après examen des ressources, des besoins ou du revenue”.
Since the PAFU is primarily intended to meet the needs of people affected by an emergency situation, we believe that the financial assistance that will be paid by the MESS in the form of a lump sum to cover living expenses and/or specific costs will be paid after a review of needs by the MESS, without the MESS conducting a means or income test for people affected by an emergency situation. This financial assistance would therefore be a social assistance benefit under section 56(1)(u).
Subsection 233(1) of the Income Tax Regulations (the "Regulations") states that "Every person who makes a payment described in paragraph 56(1)(u) of the Act shall make an information return in prescribed form in respect of the payment.” The prescribed form in this case is T5007.
Subsection 233(2) of the Regulations provides certain exceptions to the requirement to file an information return under subsection 233(1) of the Regulations. Paragraph 233(2)(g) of the Regulations provides that subsection 233(1) of the Regulations is not applicable in respect of a payment that is not part of a series of payments. As the financial assistance is paid as a lump sum that is not part of a series of payments, a T5007 is not required to be filed in respect of the payment. It is the CRA's policy that amounts so excluded from the T5007 are not required to be included in income under paragraph 56(1)(u) of the Act.
You referred to the possibility that, under the PAFU, financial assistance could be paid as a lump sum without a means, needs or income test. Whether a means, needs or income test has been conducted is a question of fact, which can only be resolved after considering all the facts of the case.
In the absence of a means, needs or income test, an amount paid under the PAFU would not satisfy the conditions of paragraph 56(1)(u) and would not have to be included in income. Consequently, the person paying the amount would not have to make source deductions or issue information slips.
Access to Information
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, the electronic library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
Best regards,
François Bordeleau, LL.B.
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.