Principal Issues: Whether amounts paid by an organization to individuals who provide support services to its clients are exempt from inclusion in the individuals' incomes under paragraph 81(1)(h) of the Act.
Position: Question of fact.
Reasons: General comments provided on the requirements of paragraph 81(1)(h) of the Act.
2005-014689 XXXXXXXXXX Randy Hewlett (613) 957-2049 November 24, 2005
Dear XXXXXXXXXX:
Re: Paragraph 81(1)(h) of the Income Tax Act (the "Act")
We are writing in response to your recent letter, wherein you asked for our opinion on whether amounts paid by your organization to certain individuals who provide support services to your clients are exempt from inclusion in the individuals' incomes.
You indicated that your organization is a non-profit organization that is funded through social services. Your organization supports clients who are eighteen years of age or older, most of whom are developmentally delayed. On a short-term, long-term or respite care basis, these clients are supported in the home of a care provider whom you indicate is self-employed. We have made several attempts to contact your office to gather more information to help determine whether paragraph 81(1)(h) of the Act applies in the situations described in your letter, but our calls have not been returned. We outline below the CRA's general position on the application of paragraph 81(1)(h) of the Act that may be helpful. We recommend that the individual caregivers contact their local CRA Tax Services Office who will assist them with the determination. Where necessary we would also be pleased to provide our assistance.
Our Comments
The exemption in paragraph 81(1)(h) of the Act applies in respect of social assistance payments made to an individual caregiver (the "Caregiver") for the benefit of a foster person (the "Cared-for individual") who is under the Caregiver's care. The Cared-for individual can be either a child or an adult. The exemption applies to an amount received by the Caregiver only when all of the following conditions apply:
1. The payment is a social assistance payment ordinarily made on the basis of a means, needs, or income test;
2. The payment is made under a program provided for by a federal, provincial or territorial law;
3. The payment is received directly or indirectly by the Caregiver for the benefit of the Cared-for individual;
4. The Cared-for individual is not the Caregiver's spouse or common-law partner or related to the Caregiver or the Caregiver's spouse or common-law partner;
5. No family allowance under the Family Allowances Act or any similar allowance provided for by provincial or territorial law is payable in respect of the Cared-for individual for the period for which the social assistance payment is made; and
6. The Cared-for individual resides in the Caregiver's principal place of residence, or the Caregiver's principal place of residence is maintained for use as the Cared-for individual's residence, during the period for which the payment is made.
The CRA can only make a determination of whether paragraph 81(1)(h) of the Act is applicable on an individual Caregiver/Cared-for individual basis with reference to all of the above-noted criteria. Any self-employed Caregiver to whom paragraph 81(1)(h) of the Act is not applicable in respect of amounts received for a Cared-for individual, is entitled to deduct the expenses incurred to earn that business income.
We trust our comments will be of assistance to you. Should you have any further questions please feel free to contact the undersigned at the telephone number indicated above.
Yours truly,
Randy Hewlett
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch