Principal Issues: (1) Are benefits paid under the Quebec government's "Soutien financier aux mineures enceintes" ["financial support for pregnant minors"] program considered taxable benefits by virtue of paragraph 56(1)(u)?
(2) If the answer to the first question is "yes", are recipients of amounts paid under the program eligible for the offsetting deduction under paragraph 110(1)(f)?
Position: (1) Yes.
(2) Yes.
Reasons: (1) After reviewing the program, its terms and conditions and its application, we are of the opinion that the amounts paid under the program are paid following an examination of the applicants' resources, needs and income.
(2) Wording of section 110(1)(f).
July 20, 2007
Business Returns and Payments Headquarters
Processing Directorate Business and Partnerships Division
Information Returns Section
Nancy Turgeon, CGA
Attention: Daniel Beaudoin Financial support program for pregnant minors
This letter is in response to your email of April 11, 2007, concerning the above subject. You wish to know the tax treatment of amounts paid under the "soutien financier aux mineures enceintes" ["financial support for pregnant minors"] program (the "program") as established by virtue of the Individual and Family Assistance Act, R.S.Q., chapter A-13.1.1.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").
Facts
The Individual and Family Assistance Act, including its Regulations, governs the program. The objective of this program is to assist young pregnant women under the age of 18, residing in Quebec, who are lacking in family and economic resources.
The program aims to provide temporary financial assistance from the 20th week of pregnancy until the birth of the child. That assistance is based on the risk to the health and physical integrity of the mother and the unborn child. It is also intended to provide active support, entailing financial support combined with other forms of support and guidance. The financial support granted to applicants is based on their income and resources, assessed on a monthly basis.
Assistance for the month of application is granted for the full month regardless of when the application is made. The income to be considered in determining eligibility is that received during the month of application and due for that month (for example, income from an office or employment and orphan's pensions from the Régie des rentes du Québec). For subsequent months, the financial assistance represents the shortfall of the previous month's resources over the needs of that month.
Our Comments
Paragraph 56(1)(u) requires a taxpayer or the taxpayer's spouse or common-law partner to include in income amounts received on account of social assistance benefits paid after a means, needs and income test.
That paragraph reads as follows:
Social assistance payments
(u) a social assistance payment made on the basis of a means, needs or income test and received in the year by
(i) the taxpayer, other than a married taxpayer or a taxpayer who is in a common-law partnership who resided with the taxpayer’s spouse or common-law partner at the time the payment was received and whose income for the year is less than the spouse’s or common-law partner’s income for the year, or
(ii) the taxpayer’s spouse or common-law partner, if the taxpayer resided with the spouse or common-law partner at the time the payment was received and if the spouse’s or common-law partners income for the year is less than the taxpayer’s income for the year,
except to the extent that the payment is otherwise required to be included in computing the income for a taxation year of the taxpayer or the taxpayer’s spouse or common-law partner;
Based on the information you have provided, it appears that the amounts paid under the program are social assistance benefits directly covered by paragraph 56(1)(u). The amounts received must therefore be included in the calculation of the income of those who receive them.
However, 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 received by the taxpayer for that year pursuant to paragraph 56(1)(u).
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.
We hope that these comments are of assistance.
François Bordeleau, Advocate
Interim Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.