January 2, 2008
The Honourable James M. Flaherty
Department of Finance Canada
140 O'Connor Street
Ottawa, Ontario K1A 0G5
I am writing on behalf of the BC Federation of Foster Parent Associations seeking
clarification regarding Paragraph 81 (1) (h) of the Income Tax Act. The following are
instances which have particular relevance to foster parents.
The BC Foster system provides payments for maintenance that covers the direct costs
of caring for a child in foster care. As there are occasions when a bed may remain
empty for a short period of time and the Ministry of Children and Family Development
wishes the bed to remain available for their needs, MCFD pays to the caregiver a bed
reservation fee to reserve the space for its use. I would like to know if subclause 60 (3)
Income Tax Act 81 (1) (h) applies in this instance.
Is there any time when a foster parent who cares for foster children in their primary
place of residence and who receives maintenance and bed reservation fees may
be required to pay income tax on any of that money. We generally refer foster
parents requesting this information to their tax professionals, however time and
time again we hear that the tax professionals themselves are unclear.
Do foster parents show the monies as non taxed income? Or do they not show it
at all, as no T4s re issued?
Are there any instances when the monies would be considered self employment
Over the past several years the question continues to arise regarding what constitutes
a primary residence when there may be two residences held by the caregiver, one of
which is partially staffed but is also used by the caregiver more than 100 hours per
week as their primary residence. The other 68 hours a week are covered by a staff
member or two who do not live at the residence.
How many hours a week must the primary caregiver reside at the residence in
order to deem a residence as a primary residence?
Are there certain criteria that must be met in order to show that a residence is a
primary residence for Income Tax purposes.
Subclause 60(3) Income Tax Act 81 (1) (h)
Paragraph 81 (1) (h) of the Act specifically exempts from income social assistance payment
made to an individual for the benefit of a foster person (child or adult) under the individual's
care where the individual and the foster person reside together in the individual's principal
place of residence. The exemption also applies to amounts (often called "bed reservation
fees" paid to individuals to maintain their residence available for use by a foster person.
This amendment which clarifies the scope of previous amendments made to paragraph 56
(1) (u) of the Act applies to the 1982 and subsequent taxation years.
This describes how the income tax exemption applies to foster care providers. Section 81
of the Income Tax Act lists various amounts that are not included in computing a taxpayers
income. In general, paragraph 81(1)(h) exempts from income social assistance payments
to an individual caregiver (the Caregiver) for the benefit of a foster person (the Cared-for
individual) under the Caregivers care. The Cared-for individual can be either a child or an
adult. The income tax exemption applies to an amount received by the Caregiver when all
of the following conditions apply:
The payment is a social assistance payment ordinarily made on the basis of a
means, needs, or income test.
The payment is made under a program provided for by a federal, provincial or
The payment is received directly or indirectly by the Caregiver for the benefit of the
The Cared-for individual is not the Caregivers spouse or common-law partner or
related to the Caregiver or the Caregivers spouse or common-law partner.
No family allowance under the Family Allowances Act or any similar allowance
provided for by provincial or territorial law is payable in respect of the Cared-for
individual for the period for which the social assistance payment is made.
The Cared-for individual resides in the Caregivers principal place of residence, or
the Caregivers principal place of residence is maintained for use as the Cared-for
individuals residence, during the period for which the payment is made.
Thank you in advance for providing clarification which will keep foster parents fully informed
regarding their duties related to Income Tax. If you require further clarification regarding
this request your staff may contact me at 604-664-0124.
BC Federation of Foster Parent Associations
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