20 August 1999 External T.I. 9921185 - AMOUNTS PAID TO FAMILY FOR ATTENDANT CARE

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:

The tax treatment of amounts paid under the Supplementary Accident Benefits Schedule in Ontario. The particular amounts are paid to a mother and other family members in respect of attendant care provided to two children in the family, who sustained “catastrophic” injuries in an automobile accident.

Position:

The benefit received by the children for attendant care be non-taxable special damages. However, the payments themselves, which are received by the mother and other family members, would be taxable.

Reasons:

Attendant care benefits would be considered special damages and thus would be non-taxable. However, the payments themselves are for services rendered. From an income tax perspective, the situation is no different than if the insurance company had contracted with an individual who is unrelated to the children to provide the service. These amounsts will be considered either employment or business income, depending on the nature of the relationship between the individual and the insurance company.

xxxxxxxxxx
J. Gibbons
					5-992118

Attention: xxxxxxxxxx

August 20, 1999

Dear XXXXXXXXXX:

This is in response to your letter of July 22, 1999, in which you requested our views on the tax treatment of amounts paid under the Supplementary Accident Benefits Schedule in Ontario. The particular amounts are paid to a mother in respect of attendant care provided to her two small children who sustained catastrophic" injuries in an automobile accident. In addition to providing care for her two children, the mother works and earns a fairly high income. Care is also provided by other family members.

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 ruling request submitted in the manner set out in Information Circular 70-6R3. The following comments are, therefore, of a general nature only.

Our position on amounts received in respect of damages for personal injury are discussed in paragraph 2 of IT-365R2. According to this position, special damages, for example, amounts received for out-of-pocket expenses such as medical and hospital expenses, are non-taxable. Accordingly, the amount of any benefit in respect of attendant care provided to an injured individual would fall under this category as non-taxable special damages.

Our general understanding of the attendant care benefit provided under the Insurance Act Regulations of Ontario is that it pays for, among other things, all reasonable and necessary expenses incurred by or on behalf of the insured person for services provided by an aide or attendant. In the situation given, the attendant care is provided by the injured children's mother or other family members. Although the attendant care benefit received by the children is non-taxable, as discussed above, the payments themselves, which are received by the mother and other family members, would be taxable. From an income tax perspective, the situation is no different than if the insurance company had contracted with an individual who is unrelated to the children to provide the service. In either case, the amounts are paid in return for attendant care service and will be considered either employment or business income, depending on the nature of the relationship between the individual and the insurance company. Employment income is reported on a T4 slip whereas business income is reported on a T4A.

You have asked whether there is any way to pay these benefits to avoid tax implications. Unfortunately, we cannot provide specific comments since the Department does not provide tax planning advice. However, you should note that the Income Tax Act has a number of provisions which are designed to prevent tax avoidance.

We trust that these comments will be of assistance. Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings
and Interpretations Directorate