My Writing > Heads Up - Liability for Non Profit Organizations

T5007 slips
3 Mar 2007

 Eileen Reppenhagen, 

Directors of Non Profit Board should be very concerned about production of T5007 slips.

There is a $2,500 fine per slip for non compliance with social assistance reporting requirements.

Social assistance includes respite or attendant care. These payments may be considered medical expenses. Unless documentation requirements are met, these payments will be considered social assistance income and must be reported to the recipient.

The Income Tax Act Regulation 233 provides for the requirement to issue a T5007 for social assistance received under S. 56(1)(u). You can find links to the Canlii copy of the Income Tax Act under my Useful Links tab.

Regulation 233 has exceptions for reporting social assistance for medical expenses (those would be the ones listed in the Income Tax Act in S. 118.2(2) and Regulation 5700.

The connection between medical expenses and the requirement to have a certified disability tax credit and to have complied with payroll by completing T4's for those who are hired is often not understood.

Organizations that provide social assistance who don’t meet the exclusions of Regulation 233 are liable for T5007 slip production and potentially could face fines of $2,500 per slip for non compliance. If your organization is not verifying the existence of the disability tax credit and that the family being funded has complied with payroll requirements, they could be on the hook for fines for not issuing a T5007.

See the T5007 guide for more information about exclusions and penalties.

http://www.cra-arc.gc.ca/E/pub/tg/t4115/README.html

Medical expenses referred to in Regulation 233 are those in S. 118.2(2). In S. 118.2(2)(b.1) attendant care for up to $10,000 which is where these respite or attendant care funds would most likely fall, requires a Disability Tax Credit approval under S. 118.3 and the person hired must have supplied their SIN #, facilitating T4 production when the amount of payment is over $500 in the year as required by CRA.

Medical and Disability Related Information Guide RC4064 includes the application form T2201 for disability with definitions of disability and over 123 medical expenses now listed for the public for the first time ever and you can link to it directly here:

http://www.cra-arc.gc.ca/E/pub/tg/rc4064/README.html

Recently some provinces have passed the social assistance distribution to non profit organizations whose administration, staff and board of directors are likely not aware of a potential liability. The requirement for T5007 slip completion under S. 56(1) (u) has not been clearly explained nor has the connection been made by many organizations who provide social assistance including community groups and possibly churches as well.

Anecdotal evidence seems to indicate that the provinces and non profit organizations provide a form for authorization to pay social assistance. It consists of a time sheet with a signature, but nothing that identifies the payee by way of SIN# who was hired to provide attendant/respite care. This provides for a perfect cover for caregivers to operate easily in the underground economy and to bully families not to provide a T4 or register for WCB in order to protect themselves from liability claims by those same caregivers.

Social workers hand the family a cheque and have most likely been instructed not to provide any tax advice to minimize the risk to the province or to their organization. Some non profit organizations are requiring that families sign a contract that they will comply with payroll requirements, but no attempt is made to ensure that they have indeed done so. I do not know if you can contract out of the obligation and mitigate the penalties for non completion of a T5007 with such a contract.

The family would not understand that the funds are only tax free to them if they met the requirements for a claim for medical expenses in S. 118.2(2) (b.1) or that they were required to comply with payroll, employment standards or WCB requirements when hiring someone to work for them. The brief note under attendant care in RC4064 is the first inkling for many families that there might be a problem.

Potential consequences to the family in receipt of social assistance for attendant/respite care of non compliance with payroll or lack of a T2201 could be the receipt of a T5007 for social assistance.

For families who qualify for tax credits such as the child tax credit, receipt of a T5007 will affect their other benefits because a T5007 increases your net income. Even though the social assistance income is reduced out below net income, any benefits that are calculated using net income also affected including for example, child tax benefits or premium assistance for provincial medical plans. Any time you are asked for your net income to qualify for a program, the program benefits would be affected by receipt of a T5007.

That's mild compared to the consequences of the caregiver determining they have a case under employment standards for minimum wage, vacation pay, statutory holidays, overtime and when they injure themselves, an income for the rest of their lives along with medical expense coverage.

To add insult to injury, provincial government lawyers will even assist the caregiver with their legal case as WCB and ESB will provide legal assistance to sue the family on behalf of the caregiver.

In addition, the provincial government in BC provides information about Autism funding here:

http://www.mcf.gov.bc.ca/autism/index.htm

and has instituted a trust arrangement for Autism funding for $20,000 under 6 yrs and $6,000 over 6 yrs. Where the parent sets up a trust bank account on behalf of the province they can supposedly get around the challenge that the funding provided is for ‘behavioral interventionists’ or BI’s who are not qualified practitioners (QP’s) because only QP's can be claimed as a medical expense if you don't have enough documentation for an attendant care claim (DTC and SIN#).

Autism Community Training has a list of qualified behavioral interventionists or BI’s that can be hired and requires that only those who are qualified, but still not QP’s are allowed to receive payments.

http://www.actbc.ca/registry_of_service_providers/information_for_service_providers/default.htm

This trust arrangement was set up in order to get around the concern that these funds were be considered income to the parent because they did not meet the exclusions in Regulation 233 as to issuance of a T5007.

http://www.actbc.ca/news/news_AutismFunding_Taxable.htm

Autism is only one of many developmental disorders and mental illnesses. The recent win in the courts that has prompted the funding of social assistance in the form of non medical interventionists makes it unique. Many other families receive social assistance that is not set up in a trust arrangement and the same rules apply regarding payroll and the requirement to have the DTC approved.


Eileen Reppenhagen, Certified QuickBooks ProAdvisor writes and speaks about accounting and tax.  She is a regular contributor to Canadian MoneySaver, The TaxLetter and Intuit’s award winning online publications for accountants and QuickBooks ProAdvisors, ProConnection Newsletter and Advisor Advantage.  

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