14 April 2009 External T.I. 2009-0305961E5 - Social assistance payments

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: What are an organization's reporting requirements under the Act for payments made under a specific program?

Position: Question of fact but it appears that payments would be social assistance for the purposes of paragraphs 56(1)(u) and 110(1)(f).

Reasons: The payments appear to be made on the basis of a means, needs, or income test.

XXXXXXXXXX 							2009-030596
								Michael Cooke, CA
April 14, 2009

Dear XXXXXXXXXX :

Re: Services to persons with disabilities

We are writing in response to your correspondence dated January 12, 2009, concerning the reporting requirements under the Income Tax Act (the "Act") for certain amounts paid by a non-profit organization (the "Organization").

Briefly, as we understand it, the provincial government funds the Organization so that the Organization may provide various support services to persons with disabilities. Specifically, the Organization provides financial support in the form of hearing aids, glasses, canes, crutches, assessments etc., to disabled individuals (the "Program"). The purpose of the financial support provided under the Program is to ensure that qualifying disabled individuals will be able to retain or find suitable employment. You have indicated that the financial support payments under the Program are based on the means and needs assessment of the particular applicant.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Circular and other publications referred to in this letter are available on our website at http:///www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office, a list of which is available on the "Contact Us" page of our website.

Paragraph 56(1)(u) of the Act includes social assistance payments that are made on the basis of a means, needs, or income test and received in the year in a taxpayer's income except to the extent that such amounts are otherwise required to be included in the taxpayer's income or the income of the taxpayer's spouse or common-law partner. However, amounts included in a taxpayer's income under paragraph 56(1)(u) of the Act are offset by a matching deduction under paragraph 110(1)(f) of the Act, such that there are no accompanying income tax implications related to this income inclusion other than it may possibly affect certain income-tested programs.

The first requirement in paragraph 56(1)(u) of the Act is that the amount must be "social assistance". The term "social assistance" is not defined in the Act. Social assistance generally means a system whereby financial assistance is extended to those individuals whose income is inadequate or non-existent owing to disability, unemployment, old age, etc. Such assistance may be provided under the auspices of a private organization, as well as a government.

The second requirement in paragraph 56(1)(u) of the Act is that the payment must be "made on the basis of a means, needs or income test". In this regard, there are three main types of financial eligibility tests used in Canadian financial assistance programs. They are:

• the needs test: takes into account the assets, income, and needs, as defined in provincial legislation of the applicant;
• the income test: based solely on the income of each applicant; benefit levels set by legislation, but not based on specific needs; and
• the means test: same as an income-tested program, but also includes an asset test.

While a question of fact, it appears that the financial assistance provided by the Organization under the Program would be social assistance for the purposes of paragraph 56(1)(u) and paragraph 110(1)(f) of the Act.

Subsection 233(1) of the Income Tax Regulations (the "Regulations") requires every person who makes a payment described in paragraph 56(1)(u) of the Act to file an information return in prescribed form in respect of such payment. Social assistance payments are generally reported on a T5007 slip. However, subsection 233(2) of the Regulations lists certain exceptions from these reporting requirements. As described in subsection 233(2) of the Regulations the following types of payments do not have to be reported on a T5007:

A payment that

(a) is in respect of medical expenses incurred by or on behalf of the payee;
(b) is in respect of child care expenses, within the meaning assigned by paragraph 63(3)(a) [now subsection 63(3) "child care expense"] of the Act, incurred by or on behalf of the payee or a person related to the payee;
(c) is in respect of funeral expenses in respect of a person related to the payee;
(d) is in respect of legal expenses incurred by or on behalf of the payee or a person related to the payee;
(e) is in respect of job training or counselling of the payee or a person related to the payee;
(f) is paid in a particular year as a part of a series of payments, the total of which in the particular year does not exceed $500; or
(g) is not a part of a series of payments.

While a question of fact, it appears that in many cases the financial assistance provided by the Organization under the Program would not have to be reported on a T5007 slip because of one or more of the specific exclusions listed above. Additional information on this topic can be obtained from the T5007 Guide - Return of Benefits (T4115).

We trust that these comments will be of assistance.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch