| 921005 | |
| M. Eisner | |
| (613) 957-2138 |
June 18, 1992
Saskatoon District Office Business and General DivisionMs. Adeline Cox Enquiries - First Floor
Exempt Payments to Caregivers
Your memorandum of February 4, 1992 which was directed to Janet Carkner of Taxline has been referred to this Directorate for reply. Your memorandum concerns the application of paragraph 81(1)(h) of the Income Tax Act (the "Act") in relation to a letter dated December 3, 1989 which you enclosed. The letter was signed by the Honourable Michael Wilson, who was the Minister of Finance at that time.
This letter addressed a problem concerning payments made to foster parents and caregivers responsible for developmentally-handicapped adults. The letter acknowledged the concern and confusion over whether certain payments received by caregivers or foster parents might be considered to be business income, and declared Mr. Wilson's intention to amend the Income Tax Act to clarify that the payments were exempt where they were made to foster parents or caregivers by a province or an agent of the province and the foster children or developmentally-handicapped adults resided in the foster parents' or caregivers' homes. The letter also indicated that these payments could include fee-for-service payments.
You have indicated that a number of caregivers are paid by a public trustee who is an agent of the Province of Saskatchewan (the "Province"). Referring to Mr. Wilson's letter, they have requested that their income tax returns be adjusted on the basis that they fall within the circumstances set out therein. The types of cases you have considered involve payments in respect of social assistance, Old Age Security, Canada Pension Plan and, worker's compensation as well as payments from a trust fund for an individual (e.g. inheritance).
Our Comments
We would first like to clarify that paragraph 56(1)(u) of the Act has always dealt with social assistance payments made on the basis of a means, needs or income test. Paragraph 110(1)(f) of the Act is related to this provision as it provides for an offsetting deduction with respect to amounts included in a taxpayer's income under paragraph 56(1)(u). The effect of these two provisions is that while such income is effectively exempt, payments which are required to be included in income under paragraph 56(1)(u) are taken into account in computing certain tax credits (e.g., the child tax credit and the personal tax credits under section 118 of the Act).
Mr. Wilson's letter addressed a problem related to a 1988 amendment to paragraph 56(1)(u) of the Act applicable to the 1982 and subsequent taxation years. The purpose of the amendment was to exclude from inclusion under that paragraph social assistance payments made in certain circumstances to foster parents or caregivers in respect of handicapped adults in order that the payments not be taken into account in computing the tax credits referred to in the preceding paragraph. However, the amendment inadvertently created the impression in a number of individuals that such payments would now be considered as having been received in the course of carrying on business with the result that the payments would have to be reported pursuant to subsection 9(1) of the Act.
In order to alleviate that problem, paragraph 81(1)(h) was enacted for the purposes of exempting from taxation certain "social assistance payments ... ordinarily made on the basis a means, needs or income test" and also that they would not be taken into account in computing the tax credits referred to above. Conversely, in our view, it follows that this provision does not exempt payments which are not social assistance payments made on the basis of a means, needs or income test. The word "ordinarily" was used in order to exclude amounts (often referred to as "bed reservation fees") paid to individuals to maintain their residence available for use by a foster person, a payment which itself is not made on the basis of the required test.
In relation to your concerns, we have referred to the Public Trustee Act (the "PT Act") of Saskatchewan. Under the PT Act, the public trustee is a person to whom the care and custody of an unsound person and his or her estate has been committed. The public trustee, in carrying out these responsibilities, may receive amounts payable to the unsound person and control assets which would otherwise be controlled by that individual. The public trustee is also empowered to expend funds for the maintenance and benefit of the unsound person. With respect to the powers granted to the public trustee, subsection 30(2) of the PT Act provides that "anything done by the public trustee as committee pursuant to the powers conferred upon him by this Act is binding on the person of whose estate he is committee in the same manner and to the same extent as if that person had done the thing himself and had been competent at the time" (emphasis added).
Accordingly, where the public trustee receives payments (in respect of the unsound person) of the type to which you have referred or controls assets which would otherwise be under the control of the unsound person (e.g. inheritances) and makes payments from these funds to caregivers, it is our view that the payments received by the caregivers cannot be regarded as "social assistance payments received on the basis of a means, needs or income test" on the grounds that the trustee is an agent of the Province. Rather, we believe that the public trustee's actions are carried out solely on behalf of the person committed to his custody and control in a capacity as agent or trustee of the individual (not as agent for the Province). However, as discussed below, it may be possible for the public trustee to make payments to a caregiver which are described in paragraph 81(1)(h). We would add, however, that since the PT Act provides that the Province is bound by the provisions therein, it appears that the public trustee has also been described as being an agent of the Province. However, we believe that the purpose of the provisions in binding the Province is to effectively require the public trustee to discharge his responsibilities pursuant to the PT Act.
As indicated above, one of the requirements of paragraph 81(1)(h) is that payments to caregivers must be social assistance payments (other than perhaps bed reservation fees) made on the basis of a means, needs or income test. Other than certain old age security payments, the payments you have asked us to consider would not satisfy this requirement with the result that they would not be exempt under paragraph 81(1)(h). We also note that, in our view, worker's compensation payments are not social assistance payments made on a needs, means or income test because they represent compensation attributable to a work related occurrence and are based on the health status of the injured worker rather than his financial condition.
Payments made under the Old Age Security Act are not subject to a means, needs or income test with the exception of the guaranteed income supplement and the spouse allowance (see paragraph 2 of Interpretation Bulletin IT-499R "Superannuation or Pension Benefits"). With respect to the guaranteed income supplement and the spouse's allowance which are based on an income test, paragraph 81(1)(h) exempts certain social assistance payments that are "directly or indirectly" received by the caregiver "for the benefit of another individual". In order for the guaranteed supplement and the spouse's allowance to fall within this wording, it is our view that these payments, initially made by the Government of Canada, must carry with them the stipulation that they be made to an individual and be used by him or her for the benefit of another individual in respect of whom they were made. It is our understanding that the guaranteed income supplement or spouse's allowance are normally made to the particular individual entitled to it rather than to a caregiver and such payments would be included in income under clause 56(1)(a)(i)(A) of the Act (and deducted under subparagraph 110(1)(f)(i)). Upon receipt of the amount, the recipient is entitled to use it in any manner he or she chooses. Consistent with these comments and those set out in the last paragraph on page 2 of this memorandum and the top of page 3 concerning the capacity of the public trustee in relation to unsound persons, the public trustee may receive a guaranteed supplement or spouse's allowance on behalf of an unsound person and use it in any appropriate manner for the benefit of the unsound person. Accordingly, if the public trustee uses the allowance or supplement to pay a caregiver, it is our view that the amounts received by the caregiver are solely characterized as being salary (employee) or fees for services (independent contractor). Consequently, amounts received by the caregiver cannot be characterized as "social assistance payments" and, therefore, would not be exempt under paragraph 81(1)(h).
As indicated in the preceding paragraph, paragraph 81(1)(h) contemplates the type of situation where, amongst other things, social assistance payments are made in respect of an individual (a foster child or a mentally handicapped adult) in circumstances in which the payments carry with them the stipulation that they be used for the benefit of the individual. Such payments are normally made by the Ministry of Social Services of a province and a caregiver may receive the payments directly therefrom or indirectly through a third party. An example of a situation involving a third party may occur where social assistance payments described in paragraph 81(1)(h) are made by the Ministry of Social Services of a province in respect of a handicapped adult to a registered charity which in turn pays the amount to a caregiver for the benefit of the individual. We would further note that the caregiver in these cases must be regarded as being an independent contractor as opposed to being an employee.
With respect to situations where an employee is involved, we are enclosing a copy of a memorandum outlining the Department's position where social assistance payments, which would otherwise be described in paragraph 81(1)(h), are used by a person to pay the salary of a caregiver. The comments regarding the situation involving the registered charity also applies to similar situations such as where a public trustee received such payments.
In view of the responsibilities of a public trustee, it appears to us that the public trustee could receive social assistance payments from a province that are made on a means, needs or income test and which carry with them the stipulation that they be used for the benefit of a handicapped adult (presumably these would include the payments from social services to which you have referred). Accordingly, where the public trustee used those payments for the purposes of making payments to a caregiver that is an independent contractor, they would be exempt under paragraph 81(1)(h) provided the other requirements therein are satisfied.
If you require further technical assistance, we would be pleased to provide our views.
J.A. Szeszyckifor Section ChiefPersonal and General SectionBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
Assessment of Returns Directorate