Principal Issues: Whether the proposed payments from the Government of British Columbia MCFD to former foster care providers in the province would meet the income exclusion requirements of paragraph 81(1)(h).
Position: Question of fact. The proposed payments will not constitute income from a source, and therefore, will not be taxable under the Act. Furthermore, the proposed payments for specified adults, without a developmental disability, would not meet the income exclusion requirements of paragraph 81(1)(h).
Reasons: The proposed payments are not income from a source since it is likely that the activity of providing care to the specified adults has a personal element, and is not being carried on in a sufficiently commercial manner to constitute a source of income from a business. Furthermore, the proposed payments for specified adults without a disability are not based on a means, needs, or income test, and would not fall under paragraph 56(1)(u).
March 9, 2023
Cornelis (Kees) Rystenbil Income Tax Rulings Directorate Manager, LPRAB Business and Employment Division Cynthia Underhill
2022-095043
Proposed housing agreement payments– tax implications and reporting requirements
We are writing in response to the submission from the Government of British Columbia (BC) Ministry of Children and Family Development (MCFD) requesting the Canada Revenue Agency’s (CRA) views on the tax consequences of the proposed Housing Agreement (HA) payments received by a former foster care parent (caregiver). More specifically, MCFD has asked whether the proposed HA payments would meet the income exclusion requirements of paragraph 81(1)(h) of the Income Tax Act (Act). In addition, MCFD has asked whether there are any reporting requirements for the HA payments.
It is our understanding that the BC MCFD is planning on amending the Child, Family and Community Services Act (CFCSA) to enhance services to support youth between the ages of 19 to 26 who have previous experience in the child welfare system. The proposed amendment to the CFCSA would allow payments to caregivers, under a HA, in order to continue to provide living arrangements for specified adults (to whom they previously provided care), after the specified adult reaches the provincial age of majority (i.e., age 19). The objective of the HA payment is to support the continuity of those relationships, promote housing stability and reduce the risk of homelessness for young adults. The HA would be between a director under the MCFD and the caregiver.
MCFD’s submission states, “The legislative intent is to enable a former caregiver to receive housing agreement payments to continue housing and supporting the young adult without affecting the former caregiver’s eligibility to receive other income-tested social assistance or benefits.” The BC government expects to introduce the legislation in the spring of 2023.
Our Comments
Generally, a taxpayer must include in income all amounts from a source that is an office, employment, business, property, or other enumerated sources (generally found in subsection 56(1) of the Act). The sources most applicable to this scenario are employment or business; and as such, we need to consider whether the caregiver is engaged in a business or whether they would be considered employed by the MCFD.
If there is an employee/employer relationship, then the amounts received by the caregiver would be considered employment income under section 3 of the Act. It is our understanding that the caregivers are not employees of MCFD; therefore the amounts received would not be employment income.
Generally, a business is an activity that an individual intends to carry on for a profit and there is evidence to support that intention. MCFD’s submission confirms that the HA payments are to be made to the caregiver, in order to continue to provide housing arrangements and family support to the specified adult. It is a question of fact as to whether the activity of a caregiver is undertaken in pursuit of profit or a personal endeavour. Based on our understanding of the facts, it is our view that the activity of being the caregiver to the specified adult, is likely not sufficiently commercial in nature to constitute a source of income from a business.
We considered whether the proposed HA payments would be included in the caregivers income under paragraph 56(1)(u) of the Act. Paragraph 56(1)(u) of the Act requires that social assistance payments received in the year and made on the basis of a means, needs, or income test are to be included in a taxpayer’s income unless such amounts are required to be included in the taxpayer’s income or the income of the taxpayer’s spouse or common-law partner under a different provision of the Act. Although the proposed HA payments appear to fall under the meaning of social assistance, it is our understanding that a financial test is not applied to the caregiver. Therefore, the proposed HA payment is not a social assistance payment made on the basis of a means, needs, or income test pursuant to paragraph 56(1)(u) of the Act.
The submission states that it is MCFD’s view that the HA payments are excluded from the recipient’s income pursuant to paragraph 81(1)(h) of the Act. Paragraph 81(1)(h) of the Act specifically exempts from income social assistance payments ordinarily made on the basis of a means, needs or income test, to an individual for the benefit of a foster person under the individual’s care. As noted above, it is our understanding that the proposed HA payment is not made on the basis of a means, needs, or income test. MCFD’s submission refers to technical interpretation (TI) 2019-080837 to support their view that the proposed HA payments are excluded from income pursuant to paragraph 81(1)(h) of the Act. TI 2019-080837 opined that the requirement under paragraph 81(1)(h) of the Act for the social assistance to be ordinarily based on a means, needs or income test is satisfied by the implicit test applicable to adults with a developmental disability. Therefore, the views expressed in TI 2019-080837 would only apply if the proposed HA payments are made for the benefit of a specified adult with a developmental disability, provided all the other requirements in the Act are met.
In summary, the proposed HA payments will likely not constitute income from a source, and therefore, will not be taxable under the Act. As such, there are no reporting requirements for the proposed HA payments. Furthermore, since the proposed HA payments, to be received by caregivers, will not be included in their income, they will not impact the caregivers income-tested benefits.
Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the taxpayer. The taxpayer may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca. A copy will be sent to you for delivery to the taxpayer.
We trust these comments will be of assistance to you.
Yours truly,
Chris Brennan, CPA, CA
Acting Manager
Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch