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10. Student and Education-Related Income

(a) Overview

Before exploring student and education-related income treatment it is worth noting the blanket welfare ineligibility provisions that applies to some students.

Single (ie. non-spousal) full-time students of post-secondary schools (eg. community colleges and universities) are ineligible for welfare if they are receiving either an OSAP or a Canada Student loan, or if they are not eligible for such a loan due to parental income, or past default in payment of such loans [Reg s.9] (see Ch.2 "Claimants: Post Secondary Students").

Further, a recipient with student funding eligibility would not be able to avoid this rule by declining to apply for student funding, as they would be forced into applying for it by the 'duty to realize available financial resources' rules (see Ch.7: "Asset Rules").

Claimants with a spouse are not categorically ineligible in the above circumstances, but the effect of their student funding (if any) will have to be assessed under normal chargeability rules, discussed below.

(b) Student and Education-Related Income Treatment

The following student loans, or portions thereof, are exempt income:
  • provincial and federal government-guaranteed student loans, but only the portions for tuition, compulsory fees, books, instructional materials, transportation and child care [Reg s.54(1)1(iii)];

  • all portions of government-guaranteed student loans to:

    - part-time students,
    - dependent adults (not 'dependent spouses': see Ch.2 "Claimants" for the distinction),
    - single parents;
    - minors in temporary care who are not sole support (ie. single parents) [Reg s.54(1)1(iv)];

  • other administrator-approved grants, awards or loans for training or post-secondary education of a member of the benefit unit that are or will be promptly applied to the cost of tuition, fees, books, instructional supplies, equipment, transportation or child care for the intended program [Reg s.54(1)2.1].
In addition, some non-loans are exempt as well:
  • provincial awards or grants from the Ministry of Advanced Education and Skills Development to post-secondary students [Reg s.54(1)2];

  • a bursaries granted under the Education Act to a full-time secondary student [Reg s.54(1)3];

  • other administrator-approved grants and awards for training or post-secondary education that are or will be applied to the cost of tuition, fees, books, instructional supplies, equipment or transportation for the intended program;

  • interest earned from and reinvested into a Registered Education Savings Plan (RESP)[Reg s.54(1)11].

  • A "Canada Education Savings Grant". These grants are paid directly into Registered Education Savings Plans (RESPs) [Reg s.53(11).

  • a gift or voluntary payment received for the purpose of making a contribution to a Registered Education Savings Plan (RESP), if the gift or payment is so applied promptly [Reg s.54(1)11.1];

  • an "Educational Assistance Payment" received from a RESP or a payment of contributions from a RESP to the subscriber or to the recipient that is or will promptly be applied by the recipient to the cost of tuition, other compulsory fees, books, instructional supplies and equipment, transportation and post-secondary education expenses related to the person's disability, approved by the administrator [Reg s.54(1)11.2,11.3].

  • An amount paid under a training program to a member of the benefit unit who is a resident of a territory that is designated as a geographic area under section 2, 2.1, 2.2, 2.3, 2.4, 2.5 or 2.6 of Ontario Regulation 136/98 (Designation of Geographic Areas and Delivery Agents) for a period of up to 12 months per training program [Reg 49(1)13].
(c) Earnings and Training Income (Dependents)

Earnings and training allowances of dependent adults (see Ch.2 "Claimants") who are in a full-time secondary school attendence, or who are attending a training program, are exempt income [Reg s.49(1)6].

Training allowances of dependent children (see Ch.2), are exempt income [Reg s.49(1)5] (as for that matter are any earnings of dependent children).

(d) Earnings and Training Income of Post-Secondary Students (Any Benefit Unit Member)

Commencing 01 May 2009 - and subject to the below-noted exceptions - earnings of a post-secondary education student, or amounts paid to such a student under a training program, are exempt income if all of the following conditions are met [Reg 49(1)10]:
  • the income is paid during school attendence or earned or paid within 16 weeks preceding attendence (commonly, summer earnings);

  • the program of study is either:

    - approved for student loans eligibility under s.7 of Reg 268/01 under the Ministry of Training, Colleges and Universities Act;

    [Note: this does not mean that a student loan has been received by the student for the program, just that the program is one approved by the Ministry generally for student loan eligibility];

    or

    - at an education institution approved under s.8 of Reg 268/01 that prepares the student for application for registration by a regulated profession under Schedule 1 of the Fair Access to Regulated Professions Act, 2006 or Schedule 1 of the Regulated Health Professionals Act;

    and

  • the course load is at least 60% of a full course load.
Note that, unlike the related asset exemption [see Ch.7, s.4(t)], there is no requirement that the income be used for the education purpose.

However, this income exception does not apply [Reg 49(1)11,12] for determining initial eligibility or the amount of assistance for the first three months of eligibility unless:
  • the applicant previously had at least three month's eligibility as a member of either an OW or ODSP benefit unit,

  • that eligibility was cancelled effective on a date within the last six months, and

  • when cancelled, the applicant had either earning or training program income.

11. Common Income Situations

(a) Motor Vehicle Accident (MVA) Settlements and Awards

. Overview

One of the most common situations of income chargeability is that of motor vehicle accident (MVA) awards and settlements.

The problems arise due to the multi-faceted nature of most MVA settlements or awards. MVA court awards usually contain elements of wage replacement, special damages (expenses), pain and suffering compensation - and often dependent claims under the Family Law Act (FLA) for loss of guidance and care-giving efforts. As well, "pecuniary loss" (ie. earnings loss) is now dealt with under the Statutory Accident Benefits Schedule (SABS) system - which is usually handled outside of the court system.

Different types of 'damages' receive different treatments as exempt assets (see Ch.7 "Asset Rules") and as exempt income [see s.8(c) above]. Primarily, damages for pain and suffering, special damages (expenses) and FLA damages for loss of guidance, care and companionship are exempt income up to a maximum of $25,000. In lump sum settlements the problem can get even more unwieldy as - while they notionally include all of these types of compensation - they are typically undifferentiated by these 'heads of damage'.

. Case Law

The case of Re Gates and COMSOC 19 OR (3d) 158 (Div Ct); [1998] OJ #5050 (QL)(Ont CA) considered whether weekly no-fault auto insurance SABS (Statutory Accident Benefits Schedule) benefits for an unemployed person were exempt as damages for pain and suffering. The Divisional Court, approved by the Court of Appeal, held that such payments where in the nature of loss of normal activities of life and therefore akin to wage replacement, which was not exempt. The case necessarily endorses the proposition that true wage replacement SABS are also not exempt from income chargeability.

In London (City) v Gibbons 69 OR (2d) 389 (Dist Ct, 1989) the court refused to allow an action by the administrator against the recipient based on an "Agreement to Reimburse and Assignment" (see Ch.8 "Applications and Procedures") after a lump sum MVA settlement. The law of the time conditioned the administrator's right to be reimbursed on the recipient's receipt of monies for "maintenance". The court (to me unconvincingly) distinguished the nature of the settlement as being one of "compensation" in the sense of a capital sum rather than "maintenance" which it equated with an income stream. On this reasoning the court refused to honour the Agreement to Reimburse and Assignment. It is worth noting regarding Gibbons that the present wording of the Regulation [s.15] (which was changed in response to Gibbons - and which now governs Agreements to Reimburse and Assignments - directly maps the concept of 'chargeable income': ie. "(i)f money ... that, if received, would be or would have been included as income for the purpose of calculating the income assistance payable...". That said, the Gibbons case may be pointed to as general authority for the principle that most MVA court settlements (as opposed to SABS amounts) are compensation for loss rather than "maintenance". While the term "maintenance" is no longer used for purpose of reimbursement in Ontario social assistance law, it is nonetheless the essential nature of welfare assistance. The case may find life yet again in some future fact situation.

A thorough and reasonable review how to treat the various elements of an MVA award and miscellaneous litigation amounts as regard to exemption as income was undertaken in the case of Re Gratton and London (City) 18 OR (3d) 354 OCJGD, 1994) (appeal to Div Ct dismissed). In Gratton the total $35,700 settlement was itemized as $26,000 general damages, $4,300 was awarded for legal costs and $5,400 for disbursements. The plaintiff paid his solicitor roughly $8,600 towards his actual bill. In applying the $25,000 income and asset exemption the court started from the principle that it was the "net" recovery that was to be considered for these purposes. Thus it immediately reduced the award by the amount of actual legal costs and disbursements down to $21,700 (increasing the legal fees reduction to reflect the true legal bill). As this remaining amount was all notionally for general (ie. pain and suffering) damages, no portion of the settlement was recoverable by the administrator, it all being exempt under the $25,000 rule, discussed above.

An enterprising plaintiff in Lesperance v Stoney Creek Dairy Ltd [1994] OJ #373 (QL) (OCJGD) tried to recover from the negligent driver the "lost" FBA (Family Benefits Act) allowance that they would 'otherwise' have been entitled to had they not been disentitled by reason of an MVA "general damages" (ie. pain and suffering") payment in the amount of $98,000 (well over the $25,000 exemption). The plaintiff argued that they would have to use their 'pain and suffering' damages for personal support (ie. food and rent) and this would be unfair. The court dismissed the claim on formalistic "causation" reasoning (ie. the MV accident didn't "cause" the loss - the payment did, and the payment was not negligent) - rather than to address the fundamental double-compensation policy issues underpinning the case.

. Handling Undifferentiated Settlements

Not all MVA settlements (as opposed to court awards) lend themselves to itemization as in Gratton above, as the solicitors at that point do not typically have the foresight to break-down the lump sum for collateral benefit purposes such as arise in the welfare situation. In those cases welfare typically approaches the recipient's solicitor to get a letter 'estimating' the allocations. If this allocation is reasonable then the administrator tends to accept it.

Those anticipating such settlements would be well-advised to make their counsel aware of the issues discussed in this section and to ensure that a reasonable allocation is recorded somewhere, preferrably in the settlement documents themselves.

The issue of when interest on a lump sum MVA settlement is 'chargeable' is discussed in (d) below.

(b) Child and Spousal Support

. Overview

While spousal support paid directly to a recipient is plainly full chargeable against them, the law respecting child support has undergone recent changes, as are discussed below.

The normal manner in which support payments occur is as a direct payment to the recipient, with a deduction from the assistance cheque showing on the cheque statement. An enterprising family court judge whose decision was reviewed in Giles v Villeneuve [1998] OJ #4492 (QL) (OCJGD) attempted by court order to override the deductibility of a support payment, but was corrected by the General Division, which noted that the deductibility was a matter of statute law.

. Child Support

An early case on this issue was Director (ODSP) v Favrod (Ont Div Ct, 2006) where a disabled ODSP adult recipient lived with her mother who was not receiving social assistance. The separated father made payments to the mother originally styled as "child support", which the Director wanted to deduct. However the Tribunal held - later supported by the court - that the "support" was in fact income to the mother (who was not in the benefit unit) to assist her as a care-giver with the extraordinary duties which she faced, not income to the recipient - thus avoiding deduction of the income from the recipient's income support.

Then in 2011 the Court of Appeal decided the case of Ontario (Disability Support Program) v. Ansell (Ont CA, 2011), which expanded and articulated the Favrod principle extensively. In this case Laskin JA (speaking for the court) considered whether child support payments made to the co-resident mother of a 21 year old recipient (an independent adult in her own one-person benefit unit) by her father counted as chargeable income for purposes of ODSP financial eligibility. The key phrasing from the definition of income under consideration was “paid to or on behalf of or for the benefit of every member of the benefit unit" [ODSP Reg 37(1)]. As in Favrod the court accepted as a fact that the therapeutic needs of the recipient required significant and ongoing commitment by the mother in terms of support, attendences and expense.

In holding that child support payments made to a person outside of the benefit unit were not automatically to be counted as income to the 'child' (read 'offspring') recipient, the court applied a range of reasoning, including the following (except as noted, these principles are also applicable to welfare cases):
  • that the 'purposes' of the ODSP program [Act, s.1(b)] made support of the recipient a shared duty between government, the community, family and the individual themselves, so that deducting the contribution of family against that of government defeated this purpose [SS Note: this is not applicable in welfare cases because the statutory 'purposes' do not include any contribution by family];

  • the right of the 21-year old recipient to co-reside with the mother but still receive ODSP as a one-person benefit unit reflected a legislative intent to separate her income from that of her mother for eligibility purpose;

  • the recipient had no legal standing to enforce the child support order;

  • that the support order did not specify how the money was to be spent;

  • that the recipient had no right of accounting from the mother as to how the money was spent;

  • that the recipient had no control over how the money was spent [this is akin to the Henson principal applied to assets: see the ODSP Guide at Ch.7; OW Ch.7];

  • that the money was taxed in the mother's hands;

  • that the child support ends with the mother's death.
Lastly, the Court of Appeal also held that automatic deduction ('charging') of child support paid to the single parent of the recipient was discriminatory under the Human Rights Code's protected category of 'family status'. This is because monies spent by a co-resident parental couple that had an incidental benefit to the recipient (still a one-person benefit unit), such as home improvements, would not be deducted from the recipient while those paid in the form of child support to a single parent would, under the Director's argument, be deductible [paras 46-47]:
[46] A separated custodial parent of a disabled adult attending school usually depends in part on the payment of child support to financially maintain the household. If the Director’s position is upheld, however, even though the custodial parent uses the child support to repair the same roof, buy the same new computer or replace the same television set, those expenses would in effect become the disabled adult’s income under s. 37(1) of the Regulation and reduce or eliminate entirely her income support.
(c) Business Income Treatment

. Overview

The question here is: are business expenses deductible from business income for purposes of determining chargeable income? The short answer is: yes.

What are and are not allowable "deductions" are discussed in general terms in the applicable Policy Directive [5.13]. Monthly reporting by the recipient is integral to the determination of net income. Further, the administrator reserves the right to approve (and thus disapprove) any particular business venture under the duty of a recipient to realize all available resources. Their reasoning is that if a recipient is pursuing a 'lost cause' then they are not making themselves available for work search and workfare duties (see Ch.11 "Workfare").

Once the "net" business income is determined then the further reductions for source deductions, earnings incentives, child-care expenses, etc are applied - in the same manner as if the income were from employment (see s.3 above).

. Background

There is a distinction in law between "employment" and "business" income. There are various terms used to describe this distinction: employment versus 'self-employment', contracts "of service" versus contracts "for service". There is a general legal test to distinguish them which examines the degree of control exercised over how the work is performed, who bears the risk of loss, who bears the chance of profit and who owns the tools. It is beyond the scope of this program to otherwise explore this distinction, but readers may wish to refer to the more complete discussion on the topic in Ch.1, s.1 of the Isthatlegal.ca Employment Law (Ontario) Legal Guide.

So, when a recipient is categorized as "self-employed" then the issue arises as to how their earnings are to be assessed for income chargeability: is it going to be gross earnings (before expenses) or "net" earnings (after expenses)? And if deductions are to allowed, which ones? This is reminiscent of the same issue in the income tax context.

Welfare law only vaguely characterizes business earnings as the [Reg s.49(1)]:
... net monthly income as determined by the administrator from an interest in or operation of a business ...
This phrasing is key to the issue and has survived from the previous General Welfare Assistance Act into the present OW and ODSP legislation. The plain meaning to be given to this passage is that business income to be considered for chargeability is reduced by business expenses (ie. it is "net" income) - but that the specific allowable business expense deductions are left to the discretion of the administrator. Like any legally-assigned 'discretion', the administrator must exercise it reasonably. Any exercise of the discretion which results in an arbitrary and complete denial of business expense deductions would be illegal.

. Case Law

While the above states the law and policy on this issue, it has had mixed treatment in the courts.

In Lemay v Ottawa-Carleton [1997] OJ #3816 (QL)(Div Ct) the court considered this same key (above-quoted) "business earnings" phrase and issue in the context of the old General Welfare Assistance Act. The court reviewed the other income deductions allowed in the legislation such as the work incentive deductions (then called "STEP") and held that the correct starting figure for business income was the gross amount - before expense deductions.

Later however in Moon v Director (ODSP) [2002] OJ #2045 (QL)(Div Ct) the court was faced with a similar issue as to whether earnings from newspaper delivery constituted employment or business income (although it assumed that treatment as a business would permit business expense deductions). While the case involved an ODSP recipient the key statutory wording was the same as discussed above. The court criticized the Tribunal for examining this issue from an employment law perspective and using an employment law questionnaire set out in their policies, stating:
This legislation is social benefit legislation which should be interpreted broadly with its purposes in mind. As a general proposition, we accept the appellant's submission that it is desirable to encourage persons who receive the benefits provided by this legislation to supplement their benefit income by earning what they can. Where such a person is able to engage in some gainful activity and operates a modest business by entering into a contract for services, the legislation should be applied in such a way as to encourage him or her. Expenses incurred in operating such a modest business should be deducted in calculating entitlement to benefits.
Oddly, the Moon case - while based on essentially the same wording considered in LeMay itself did not consider - but simply assumed that if the recipient was categorized as engaged in a business then he would be entitled to have his earnings reduced by business expenses. In so doing the court implicitly adopted the 'plain meaning' of Reg s.49(1)1 which I outlined above. There is no reference in the Moon case to the earlier LeMay case. It appears that LeMay is an anomaly.

Case Note:
In the ODSP case of Jennings v. Minister of Social Services of Ontario (Div Ct, 2015) the court held (as it rarely does) that the SBT's misapprehension of evidence was so substantial that it constituted a 'question of law' (thus triggering the court's appeal jurisdiction). The legal error was twofold in that the Tribunal considered real estate assets and income of a partnership (in which the appellant had an interest) to be his personal financial resources which were chargeable against him for ODSP purposes, and also that it failed to consider financial disclosure provided by the appellant to Ontario Works during the unified intake process (the applicant's initial financial information was taken by OW) as being effective disclosure to ODSP:
The Tribunal found that Mr Jennings’ position that “there was no need for him to inform the Director separately when he had already informed Ontario Works borders on the ridiculous.”[61] It was not ridiculous. It was correct, at least until the time at which there was a change of circumstances, upon sale of the property in July 2011.
The court also held that it was only on the sale of the partnership interest (and the receipt of sale proceeds) by the appellant that such funds could be chargeable against him, since prior to that time the partnership interest was not available to him as a liquid asset. The court cited Reg 28(1)17 as exempting (from asset chargeability) real estate interests as long as "the person with the interest in the real property is making reasonable efforts to sell his or her interest."

The court took the unusual step of ordering that re-assessment of the appellant's eligibility in light of it's findings be conducted by an ODSP worker who had no earlier involvement with the file, and that - should a new SBT appeal arise from the circumstances - that it not be put before the same member who issued the Order under appeal.

(d) Interest on Retroactive Lump Sum Payments

. Overview

Situations where a recipient receives a retroactive lump sum payment - such as an MVA settlement or STD/LTD back-payments - often involve the payment of accrued interest on the delayed payment (retroactive government entitlements usually do not include interest).

The issue can arise in such situations as to whether the interest should be treated in the same way as the principal amount for income and asset purposes (as different types of monies are treated quite differently), or whether it is 'general' - and thus chargeable - income. While in my experience it is usual for any interest amounts to be allocated proportionally with the elements of the principal payment, and thus subject to the same income and asset treatment, the issue did arise directly in the case of Mule v Director, ODSP - considered below. The case is essential reading for anyone involved in such a conflict.

. Case Note: Mule and Director, ODSP (Div Ct, 2007)

In Mule v Director, ODSP (Div Ct, 2007) the court was faced with the (relatively) straightforward issue of whether:
... prejudgment interest on damages for pain and suffering form(s) part of the "damages or compensation for pain and suffering" received by an injured person?
"Prejudgment interest" (as distinct from "post-judgment interest", which is self-explanatory) is a concept used in civil litigation (lawsuits). It operates to give a successful plaintiff interest on damage awards (which are always made later) for the period between the filing of the lawsuit and the issuance of judgment. Under the Courts of Justice Act, s.128, [and Rules of Civil Procedure R53.10], the rate for pain and suffering (called "non-pecuniary loss") is five percent. This point is relevant to the case.

The significance of whether prejudgment interest formed part of the pain and suffering award is that an amount [$25,000 for OWA at April 2008] of such damages (when assessed collectively with some other income types) may be exempt from both income and asset chargeability. However, if interest accruing on such amounts - necessarily paid in a lump sum and (usually) years later was not included within the exemption - then overpayments and even retroactive ineligibility would result (as interest frequently forms a large part of the final award or settlement).

Despite resourceful reasoning by the Social Benefits Tribunal member below, the court ultimately held - at least in the case of pain and suffering awards - that prejudgment interest was to be grouped with the main lump sum and thus within the exemption. While generally inclined in it's reasoning to the (useful) conclusion that interest was an 'indivisible part' of any retroactive lump sum award, the court located it's decision on the safer grounds that the special interest rate (see the Note above) accorded pain and suffering damages especially justified such treatment:

Since the victim must, of necessity, suffer without compensation for a period of time until his or her damages are capable of assessment, the legislature has determined that the victim will be entitled to additional compensation at the rate of 5 per cent of the non-pecuniary damages award per annum. This award is not tied to the amount of interest that the award could have earned had it been paid on the day that the cause of action arose, but is instead a fixed percentage. Seen in this way, the award of prejudgment interest can be said to form part of the overall compensation package to which the victim is entitled.

As noted above, the case is essential reading for anyone facing an argument from the Director that interest on any sort (not just MVA) lump sum retroactive payment is chargeable, with respect to either income or assets.

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Welfare (Ontario Works) Law (15 July 2020).