Date: 20011004
Docket: 2000-1871-IT-I,
2000-1872-IT-I
BETWEEN:
JOHN ANDERSON,
LANDY ING
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor Judgment
O'Connor, J.T.C.C.
[1] These appeals were heard on common evidence at Toronto, Ontario on February 14, 2001. Subsequent to the hearing of the appeals, written submissions were provided by the Appellants and counsel for the Respondent.
[2] Although numerous submissions have been made in these appeals, which have contributed to the delay in rendering judgment, the simple issue is whether or not payments received by the Appellants in 1993 and 1994 from the Alan Stewart Homes Corporation ("ASH") constitute income that is subject to income tax or whether the income qualifies for an exemption from taxation by virtue of paragraph 81(1)(h) of the Income Tax Act ("Act") as the Appellants maintain. It is the Respondent's position that the exclusion in paragraph (h) does not apply because the Appellants' did not receive a social assistance payment; rather they received fees for services from ASH pursuant to a contract with that corporation.
FACTS
[3] The following are the most relevant facts:
(a) These appeals relate to 1993 and the first two months of February, 1994 (the "Period"). During the Period ASH owned a home at 2123 Theoden Court ("Theoden Court") where the Appellants resided with their three children and the Appellants provided foster care there.
(b) The Appellants were not taxed on the full amount of the funds received from ASH. They were only reassessed on their net income after deducting expenses incurred for the benefit of the foster children. Details are set forth in Exhibit R-1, Tabs 9 and 10.
(c) In Ontario foster care is provided either by local Children's Aid Societies ("CAS") or by specialized corporations. These corporations may operate on either a for-profit or a non-profit basis.
(d) In some cases a CAS contracts with foster parents to provide care to foster children. A CAS may also contract with a corporation to provide that care. Transcript, p. 74-75.
(e) ASH is a for-profit corporation involved in the provision of foster care primarily to children with special needs.
(f) According to Mr. Kevin Morris, a representative of the Ministry of Community and Social Services (the "Provincial Ministry"), a CAS that engages foster parents to provide foster care had to pay those foster parents a minimum per diem of $14.00 per day during the Period, i.e. 1993 and 1994. However, the Provincial Ministry did not mandate that ASH make any minimum payment to the Appellants during the Period. Transcript, p. 101, lines 17-21; p. 118, line 7; p. 135, lines 1-13.
(g) The Provincial Ministry did not review the contract between ASH and the Appellants.
(h) ASH's group home licence for Theoden Court stated that ASH could charge $87.50 per day for a child placed there. Transcript, p. 119, line 17.
(i) It was understood and accepted by the Ministry that the $87.50 rate included an amount as profit for ASH based on occupancy rates. Transcript, p. 121, line 14-25; p. 122, line 1-16; p. 132-133.
(j) The Provincial Ministry did not require ASH to account for how it spent the $87.50.
(k) The $87.50 limit was not intended to operate as a limit on what ASH could charge; rather it represented the maximum amount that the Provincial Ministry was willing to pay to a CAS to go out and purchase services from ASH.
(l) The $87.50 per diem was not set by statute or regulation. Transcript, p. 129, lines 11-14.
(m) The Appellants entered into a contractual arrangement with ASH on August 1, 1990 to provide care to children placed with ASH. The contract provided that the Appellants were to be paid $32.00 per day per child (raised to $35.30 per day for the Period). ASH provided the house at Theoden Court, where the Appellants and their three children lived during the Period, on a rent-free basis. ASH also supplied furniture, paid for major repairs, medical and dental costs, prescription drugs, and part of the clothing needed by children in the care of ASH. The Appellants paid for utilities, non-prescription drugs, transportation services, allowances and recreation for the children. Transcript, p. 12-14, p. 46 lines 1-3; Exhibit R-1, Tab 12.
(n) Mr. Anderson acknowledged that it would have been impossible for the Appellants to support a family of five (the two Appellants and their three children) without the per diem. That income was essential to meeting the basic living expenses of the Appellants and their family. Transcript, p. 46-47.
(o) Ms. Ing in cross-examination acknowledged that the income of the Appellants fluctuated between 1990 and 1993 because she and Mr. Anderson had children of their own during that period. However, the amount of the per diem did not change to take into account these fluctuations. Transcript, p. 59-62, esp. p. 60, lines 17-25.
SUBMISSIONS
[4] The Respondent submits that the income received by the Appellants from ASH is not exempt from taxation for the following reasons:
(a) the payment from ASH to the Appellants is a fee or salary and not a social assistance payment or a payment made under a program provided for by a law of Canada or a province;
(b) the payment is not based on the means, needs or income of either the Appellants or the foster children;
(c) the Minister has already allowed a deduction to the extent that the payments were used to cover the costs of the foster children. No further exemption is allowed under paragraph 81(1)(h).
[5] Paragraph 81(1)(h) provides the following tax exemption:
81(1) There shall not be included in computing the income of a taxpayer for a taxation year,
...
(h) where the taxpayer is an individual (other than a trust), a social assistance payment (other than a prescribed 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 (other than the taxpayer's spouse or a person who is related to the taxpayer or to the taxpayer's spouse), if
(i) no family allowance under the Family Allowances Act or any similar allowance under a law of a province that provides for payment of an allowance similar to the family allowance provided under that Act is payable in respect of the other individual for the period in respect of which the social assistance payment is made, and
(ii) the other individual resides in the taxpayer's principal place of residence or the taxpayer's principal place of residence is maintained for use as the residence of that other individual, throughout the period referred to in subparagraph (i);
A. Payment is a fee for services not a social assistance payment made under a program provided for by the law of a province.
[6] There are two separate requirements:
(a) The payment must be social assistance, and
(b) Payment must be made under a program provided for by a provincial law.
Both requirements raise the same issue: Did the Appellants receive a per diem because they had a statutory right to be paid or was the per diem simply consideration owed pursuant to the terms of a contract? Counsel for the Respondent has advised that the Minister has been willing to accept on an administrative basis that a non-profit organization is essentially the same as the government. Thus a payment from such an organization directly to a foster parent is the same as a payment from a government, but the Minister has never extended this treatment to payments from a for-profit entity. Reference was made to the Income Tax Technical News No. 17, Apr. 26, 1999. It is submitted that a person's entitlement to a social assistance or program payment is a right created by the specific statute that mandates the payment. The resulting payment is not given as consideration for any good or service. By contrast the Appellants do not have a statutory right to be paid. All they have is a contractual right to be paid and that payment is made as consideration for services rendered.
[7] InStorey Group Homes Ltd. v. The Minister of National Revenue, 92 DTC 1295 the Appellant was a corporation that provided foster care through houses staffed by house parents. The parents performed duties that were similar to those of these Appellants. The corporation received almost all of its income from various Children's Aid Societies. The corporation argued that the money that it received from the CAS's was a social assistance payment and was not taxable. Despite a concession on this point by the Respondent, Bonner, J.T.C.C. expressed strong reservations that such payments constituted social assistance and refused to make such a finding. His conclusion on the tax status of the payments was as follows:
... The amounts received by the Appellant were received by it as the ordinary revenues of its business pursuant to contracts between it and the various children's aid societies. Such amounts were not, in my view, received as social assistance. ...
[8] The decision in Saulniers v. Her Majesty the Queen, [1996] T.C.J. No. 1298 case also relied on a distinction between money paid as of right and money earned under a contract. The Court was of the view that paragraph 81(1)(h) was never intended to exempt income earned by a person running a business at a profit.
[9] In this case the Appellants are running a business at a profit and, according to the evidence, they depend on their income from ASH to help make a living. In this way they are no different from teachers, social workers or fire fighters. [One might add the clergy, doctors and nurses.] Persons working in each of those professions render an important service to society and often do so for reasons other that the possibility of making money. Nevertheless each of those persons is taxed on their earnings because their occupation constitutes a source of income.
B. Means, Needs or Income Test
[10] Paragraph 81(1)(h) requires that the payments in question be made on the basis of a means, needs or income test. Thus a person is only entitled to the payment if his means, needs or income are within the parameters set out by the legislation. In this case neither the Appellants' right to be paid, nor the quantum of payment was dependant on passing a means, needs or income test. Instead the Appellants had a contractual right to be paid a specific per diem regardless of the means, needs or income, of themselves or the children who were under the care of ASH.
C. The Profit Component
[11] The fact that both ASH and the Appellants derive a net income from the money received for each child is one of the strongest indicators that there is no relationship between the means, needs, or income of the children and the amount of the payment. The amount of money that ASH can charge for taking care of a child includes a profit component for ASH. This profit margin has nothing to do with means, needs or income of the Appellants or the children under their care.
[12] Likewise, the payments from ASH are intended not only to cover costs related to providing foster care, but also to compensate the Appellants for their services. The Appellants received $35.30 per day per child but did not need the full amount to care for each foster child. Instead the Appellants treated the money as gross income. They used the funds to cover the costs of caring for the foster children, and whatever was left constituted their net income. That net income was for their benefit and they did not have to account to anyone for the manner in which it was spent.
D. Payment for the Benefit of Another Person
[13] In the alternative that the payments to the Appellants constituted social assistance payments made on the basis of a means, needs or income test provided for under the law of a province, it is submitted that only the portion of the payment that was for the benefit of the children under the Appellants' care qualifies for the exemption under paragraph 81(1)(h).
[14] Paragraph 81(1)(h) only exempts the payment in dispute from taxation "... to the extent that it is received directly or indirectly by the taxpayer for the benefit of another individual ...".
[15] In this case, the Minister did not tax the entire amount of the per diem. The Minister allowed the Appellants to deduct the cost of actually providing care to the foster children. The Minister only taxed the Appellants on the net income from the per diem which net income benefited the Appellants and not the foster children. Since the foster children did not benefit from this net income, no further reduction is permitted by paragraph 81(1)(h) of the Act.
[16] The above summary of facts and Respondent's submissions have, to a large extent, been extracted from the Respondent's Written Submissions. In my opinion these submissions are correct. The result is that the appeals are dismissed.
Signed at Ottawa, Canada, this 4th day of October, 2001.
"T. O'Connor"
J.T.C.C.
COURT FILE NO.: 2000-1871(IT)I and 2000-1872(IT)I
STYLE OF CAUSE: John Anderson and Landy Ing v. The Queen
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: February 14, 2001
REASONS FOR JUDGMENT BY: The Honourable Judge Terrence O'Connor
DATE OF JUDGMENT: October 4, 2001
APPEARANCES:
Counsel for the Appellant: The Appellants themselves
Counsel for the Respondent: Michael Ezri
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-1871(IT)I
BETWEEN:
JOHN ANDERSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of
Landy Ing (2000-1872(IT)I) on February 14, 2001 at Toronto, Ontario
by the Honourable Judge Terrence O'Connor
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Michael Ezri
JUDGMENT
The appeals from the reassessments made under the Income Tax Act for the 1993 and 1994 taxation years are dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 4th day of October, 2001.
|
"T. O'Connor" |
J.T.C.C.
2000-1872(IT)I
BETWEEN:
LANDY ING,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on common evidence with the appeals of
John Anderson (2000-1871(IT)I) on February 14, 2001 at Toronto, Ontario
by the Honourable Judge Terrence O'Connor
Appearances
For the Appellant: The Appellant herself
Counsel for the Respondent: Michael Ezri
JUDGMENT
The appeals from the reassessments made under the Income Tax Act for the 1993 and 1994 taxation years are dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 4th day of October, 2001.
|
"T. O'Connor" |
J.T.C.C.