| 19(1) | File No. 5-9235 |
| J.A. Szeszycki | |
| (613) 957-2103 |
January 25, 1990
Dear Sirs:
Re: Payments to Adoptive Parents
We are responding to your letter of September 18, 1989 addressed to the District Office in Vancouver which was forwarded to this office for consideration and reply. Your letter describes payments being made to adoptive parents and you request clarification as to the correct treatment of these payments for tax purposes.
As we understand the nature of these payments there are two types of subsidies being provided to adoptive parents, each of which is authorized under the general provisions of section 97 of the Children's Act of the Yukon Territory.
The first type of payment is one that is provided to adoptive parents who otherwise have insufficient income to allow them to adopt a child. A needs test is applied to determine entitlement to the subsidy and the amount of the payment.
The second type of payment is one that is provided to parents adopting a special needs child. The payment is intended to partially compensate for the additional time effort required to care for a child with special needs. There is no means, needs, or income test applied. In fact, you have stated that the recipients of this payment are otherwise financially secure.
Our Comments
This first payment appears to have the characteristic of a social assistance payment that is made on the basis of a means, needs or income test. Social assistance payments are required to be included in income under the provisions of paragraph 56(1)(u) of the Income Tax Act (the "Act"). The Act further provides that where such social assistance payments are required to be included in income and the payments are provided for by an Act of Parliament or a law of a province (or territory) a deduction in respect of the total of such payments in the year may be made in calculating the recipient's taxable income, as long as the recipient resides with the person (child) in respect of whom the payments were made. The effect of the above tax provisions is to negate any increase in taxable income; however, the additional income does from part of the "family income" for the purposes of calculating the Child Tax Credit and the Federal Sales Tax Credit.
The second payment described above is also a subsidy provided for under a social program of the Yukon Territory; however, it is not made on the basis of a means, needs or income test. Consequently, paragraph 56(1)(u) of the Act does not have application. In addition, the payment is not considered as a source of income under any other provision of the Act and is therefore not taxable.
We hope that we have been able to clarify the proper tax treatment for the two types of subsidies described in your letter.
Yours truly,
for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch
c.c. J.D. K. McGuireChief of Enquiries and Office ExaminationsVancouver District Office
c.c. Provincial and International Relations Division