Principal Issues: Taxability of home boarding income to recipients. Home providers receive payment to board students attending a XXXXXXXXXX school to XXXXXXXXXX
Position: The taxability of the amounts paid to home providers is a question of fact. General comments provided.
Reasons: Each recipient's situation and therefore tax treatment may differ.
XXXXXXXXXX 2008-027762 Michael Cooke September 26, 2008
Dear XXXXXXXXXX :
Re: XXXXXXXXXX Program
This is in response to your letter dated April 11, 2008 regarding the taxability under the Income Tax Act (the "Act")of payments received by various homeowners under a "XXXXXXXXXX program" (the "Program") from XXXXXXXXXX students attending a XXXXXXXXXX school (the "School") to XXXXXXXXXX .
In your letter you indicate that under the Program students attending the School live in the homes of local individuals ("Homeowners") who agree to participate in the Program. These Homeowners are paid a monthly fee of $XXXXXXXXXX by the particular student. The monthly fee is intended to cover the student's living costs (i.e. room, food, utilities and laundry) as well as transportation to School and other related assistance the student may require. You ask if the monthly fee should be treated as income to the Homeowners.
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. However, we offer the following comments.
Our Comments
The taxability of amounts paid to the Homeowners remains a question of fact, which can only be determined on a case by case basis. For example, if the monthly fee is intended to specifically reimburse the Homeowner for reasonable and accountable expenses incurred by the Homeowner for participating in the Program and there is no element of income or profit (essentially the amount of the Homeowner's monthly expenses would equal or approximate the amount of the monthly fee received) then the amount would not be taxable. However, if there were an element of income or profit built into the monthly fee, the payment's character would have to be determined.
An amount paid to a landlord as rent might be considered to be either income from a property or income from a business, depending on the degree of commerciality and the number and kinds of services provided to the tenants. In most cases, a landlord would be earning income from a property if the arrangement involves the rental of the space and the provision of basic services only. Basic services include heat, light, parking, and laundry facilities. However, if the landlord provides additional services to tenants, such as cleaning, security and meals, the landlord may be carrying on a business. The more services provided, the greater the chance that the income would be considered as income from a business.
In the situation described in your letter, and assuming there is an element of income or profit built into the monthly fee, it is our view that the income would be considered as income from a business since the Homeowner is required to provide more than basic rental services to the Students.
We trust that these comments will be of assistance.
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch