June 8, 1987
SMALL BUSINESS AND GENERAL DIVISION Mary Evans (613) 957-2133
RE: Social Assistance Payments Received by Service Providers XXXX
This is in reply to your memorandum and attachments of April 6, 1987, in which you advise that, notwithstanding the opinion given by (at that time) Corporate Rulings Directorate on October 27, 1985, that the deduction under paragraph 110(1)(f) of the Act is available to operators of residential homes for children in respect of payments received by them from the Children's Aid Society and the Ministry of Community and Social Services on the basis of a means, needs or income test of the children's parents, it remains your view that such payments are made for services provided by the operators and should be considered as business income.
We have examined the partnership statements of XXXX their agreements with the Minister of Community and Social Services and the Children's Aid Societies and the Provincial Acts under which the payments in question are made. We advise that the tax consequences outlined in the memorandum dated October 27, 1985, referred to above, continue to be our interpretation of the provisions of paragraphs 56(1)(u) and 110(1)(f) of the Act and, in our opinion, apply to the partnership in question. In this regard, we refer you to paragraph 3 of Assessing Division's Directive No. ASG-85-29 dated July 26, 1985.
Regarding the second to last paragraph on page 2 of the memorandum dated October 27, 1985, while we agree that technically the deduction under subparagraph 110(1)(f)(iii) of the Act is available for the gross amount of the social assistance payments included in computing income, we have been advising District Offices not to encourage this practice. We therefore suggest that the subparagraph 110(1)(f)(iii) deduction to reduce net income to NIL, as filed by the partnership, be accepted.
We trust this information will be of assistance.
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
cc John Oulton Provincial and International Relations Division