28 May 1996 External T.I. 9610665 - FOSTER HOME CARE INCOME

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Taxation of foster payments to caregivers

Employment Status of caregivers (referred to CPP/UI at TSO)

Position:

Restatement of conditions of 81(1)(h). Question of Fact

Reasons:

Insufficient information provided to confirm tax status of payments. Employment status to be determined.

		961066
XXXXXXXXXX	D. Zion

May 28, 1996

Dear XXXXXXXXXXs. Harrison:

Re: XXXXXXXXXX - Foster Home Care

We are writing in response to your correspondence of March 18, 1996, regarding the taxability of amounts received by caregivers as well as the employment status of these caregivers.

Due to the nature of your enquiry and the lack of detail provided in your correspondence, we can only provide general comments on the taxation of payments made in respect of children in the care of the province (foster children) which should be of assistance to you. In particular, it is not clear from your letter whether or not the children ordinarily reside with the caregivers, the nature of the relationship between the caregivers and XXXXXXXXXX the source of the program funding and the legislative authority under which such payments are made. A review of all the relevant facts and documentation is needed in order to assess the tax consequences of a particular situation.

Generally, the exclusion from income contained in paragraph 81(1)(h) of the Income Tax Act (the "Act") applies to a "social assistance payment ... ordinarily made on the basis of a means, needs or income test under a program provided for by an Act of Parliament or a law of a province, to the extent that it is received directly or indirectly by the taxpayer for the benefit of another individual." Under paragraph 81(1)(h) of the Act, payments to an individual, other than a trust, for the care of foster children will generally be excluded from income when:

1.the cared-for person is unrelated to the individual,

2.the cared-for person is living in the individual's principal place of residence, or the individual's principal place of residence is maintained for use as the residence of the cared-for person,

3.the payment is made under a social assistance program of a province or of Canada, and

4.no family allowance or similar allowance is payable in respect of the cared-for person for the period of time in respect of which the social assistance payment is being made.

Although the social assistance payments themselves may be excluded from income under paragraph 81(1)(h) of the Act, the exemption from tax does not apply to salary or wages paid under a contract of employment, even if the duties of employment are performed in an employee's residence.

It is a question of fact as to whether a caregiver is an employee or an independent contractor. The determination of an individual's employment status is the responsibility of the Department's tax services office serving the geographical location of the payor. The Revenue Collections Division of your local tax services office is prepared to review the facts and circumstances, including the contract under which payments are made to the caregiver, in order to determine the caregiver's status for the purpose of the Canada Pension Plan and Unemployment Insurance Act. The status so determined applies for the purpose of the Income Tax Act as well. Accordingly, your correspondence has been forwarded to Mr. Bill Woodgate, Group Head of the CPP/UI Rulings Section, Revenue Collections Division at the Vancouver Tax Services Office. They will contact you shortly to obtain additional information to facilitate their review of the pertinent details and documentation. Upon this review, they will be in a position to advise you of the tax consequences arising from the monthly caregiver payments and any caregiver's participation in the company Health Plan.

We trust that you will find this satisfactory.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

c.c.Mr. Bill Woodgate

CPP/UI Rulings Section
Revenue Collections Division
Vancouver Tax Services