Principal Issues: [TaxInterpretations translation] What is the tax treatment of the following amounts paid under the "Devenir" program of the Quebec Ministry of Employment and Social Solidarity:
(1) The support allowance of $130 per month;
(2) Reimbursement of additional costs related to participation in the "Devenir" program, such as childcare and transport costs.
Position: (1) This is a social assistance benefit to be included in the income of "Devenir" recipients. Those recipients will be entitled to the offsetting deduction provided for in paragraph 110(1)(f) of the Income Tax Act. Form T5007 will need to be completed for the support allowance amount.
(2) Reimbursements for child care and transportation expenses incurred by program providers will be included in their income by virtue of paragraph 56(1)(u) and will qualify for the offsetting deduction under 110(1)(f). Only transportation reimbursements will need to be included on Form T5007.
Reasons: The Income Tax Act.
Mr. Daniel Beaudoin Program Officer Individual Returns and Payments Processing Directorate Place Poste Canada 750 Heron Street Ottawa ON K1A 0L5
February 21, 2006
Dear Sir,
Subject: Request for technical interpretation - Amounts received under the "Devenir" program
This is in response to your email dated January 25, 2006, in which you requested our opinion on the tax treatment of payments made under the "Devenir" program of the Quebec government's Ministère de l'Emploi et de la Solidarité Sociale ("MESS"). As part of our response, we will also examine the requirements for recording those amounts on the appropriate federal statements.
Background
The Employment Assistance Program (also known as social assistance) is a program administered by the MESS that is intended to provide last-resort financial assistance to Quebec residents. According to the information we collected, the MESS is divided into two main branches, Emploi-Québec and Income Security.
Eligibility for the basic benefit of the Employment Assistance Program depends on three factors:
(1) The individual's resources must be equal to or less than the amounts set by the Income Support Regulation;
(2) The claimant must reside in Quebec; and
(3) The claimant must be over 18 years of age or, if not, have been married or be the parent of a dependent child.
The basic EI benefit is $543 per month for a single adult without children. In addition to the criteria mentioned above, EI recipients do not have to satisfy any requirements to qualify for the basic benefit.
In addition, the Income Security branch of the MESS will soon set up the "Devenir" program, targeting employment assistance recipients in the most difficult economic and social situations. Those claimants - who are not employable - are encouraged to use certain support and guidance services. Those people can also participate in workshop retreats, do voluntary work or benefit from any socio-psychological follow-up. The ultimate goal of this program is to provide those claimants with the necessary tools so that they can ultimately benefit from Emploi-Québec's services in order to obtain a job.
As part of their participation in the “Devenir” program, employment assistance claimants will be eligible - in addition to the basic benefit - for additional payments, including
- a support allowance paid to those claimants who actively participate in the program's occupational activities (in the amount of $130 per month); and
- reimbursement of additional costs associated with participation in the "Devenir" program, such as childcare and transportation costs.
According to the information received, the support allowance is an element that is taken into account in the calculation of the benefit granted under employment assistance. It is not a separate allowance, but rather is integrated into the employment assistance benefit as a component of the calculation, in the same way as the allowance for Severely Limited Capacity for Employment or the allowance for Temporarily Limited Capacity for Employment paid by Emploi-Québec.
Question
Your question concerns the tax treatment of the above amounts and how the MESS should report them on the relevant tax statement(s).
Analysis
In order to determine whether the above amounts are taxable in the hands of EI claimants, it is necessary to refer to paragraph 56(1)(u) of the Income Tax Act (the "Act").
The key passages of that provision read as follows:
56 (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year, […]
(u) a social assistance payment made on the basis of a means, needs or income test […] except to the extent that the payment is otherwise required to be included in computing the income for a taxation year […].
(1) Support allowance of $130
In order for this allowance come within paragraph 56(1)(u), it is necessary that two basic requirements - which are also satisfied with respect to the amount of the basic employment assistance benefit - be satisfied. First, the payment must constitute social assistance to the recipient. Second, the payment must only be made to the recipient on the basis of the recipient's resources, needs and income.
In order to define what constitutes social assistance for the purposes of paragraph 56(1)(u) - since this term is not defined there - the Canada Revenue Agency ("CRA") has already referred to Part V of the Federal-Provincial Fiscal Arrangements Act, which defines the term "social assistance" as "aid in any form to or in respect of a person in need”.
It may also be appropriate to refer to the definition of that term, as set out in the Nouveau Petit Robert, Nouvelle édition, Dictionnaires Le Robert, Paris, 2000, which provides a definition similar to the above: secours donnés aux personnes dans le besoin [relief given to needy persons]. We are therefore of the view that the support allowance constitutes social assistance for the purposes of paragraph 56(1)(u).
Furthermore, it must be determined whether the support allowance is paid on the basis of a means, needs and income test of the employment assistance recipient. The basic benefit of the employment assistance program is paid to Quebec residents who are most in need, both financially and socially. According to the CRA, it is clearly a means, needs and income test. As for the support allowance paid under the “Devenir”' program, we believe that the same conclusion applies. That allowance is targeted at employment assistance recipients who are most in need and who are the most disadvantaged. Since that allowance is part of a set of elements that determine the employment assistance benefit, we believe that it satisfies the requirements of paragraph 56(1)(u) and that it should be included in the income of the allowance’s recipients. On the same basis, those recipients will be entitled to an offsetting deduction under paragraph 110(1)(f).
Any person making a social assistance payment under paragraph 56(1)(u) must complete an information return in respect of the payment. Thus, we believe that MESS will be required to complete the T5007 form in respect of the support allowance.
(2) Reimbursement of additional costs
(i) Childcare costs
Based on the facts you have provided, we consider that the child care allowances are social assistance payments under paragraph 56(1)(u). Based on the treatment of support payments above, the amount of the child care allowances will benefit from an offsetting deduction under paragraph 110(1)(f).
Furthermore, subsection 233(2) of the Income Tax Regulations ("ITR") provides that the requirement to file an information return does not apply in respect of certain payments, including those for child care expenses, within the meaning assigned by paragraph 63(3)(a) of the Act, incurred by or on behalf of the payee or a person related to the payee.
(ii) Transportation costs
Consistent with our analysis above, we consider the transportation costs to be social assistance payments for the purposes of paragraph 56(1)(u). Although those costs are in the form of expense reimbursements, they are nonetheless amounts received as social assistance benefits based on a needs test that are paid under a government assistance program.
Unlike child care expenses, transportation expenses must be included on the T5007 form. An offsetting deduction will be available for those expenses.
Best regards,
Phil Jolie
Director
Business and Partnerships Division
Income Tax Rulings Directorate