5 September 2002 External T.I. 2002-0144845 - REIMBURSEMENT OF CHILD CARE COSTS

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Whether the reimbursement of child care expenses would constitute a taxable employment benefit

Position: Yes, unless the reimbursement relates to additional child care costs incurred due to a requirement to travel on employment-related business.

Reasons: The reimbursement of child care expenses would normally be a taxable benefit. There is an exception where the employee is reimbursed for additional child care costs incurred as a result of a requirement to travel out of town on employment-related business.

XXXXXXXXXX Wayne Antle, CGA
2002-014484
September 5, 2002

Dear XXXXXXXXXX:

Re: Reimbursement of Child Care Expenses

This is in response to your letter of June 4, 2002, concerning whether the reimbursement of child care expenses by an employer would constitute a taxable employment benefit in three different scenarios.

XXXXXXXXXX paid child care expenses on behalf of its employees who, XXXXXXXXXX, performed temporary duties under the following conditions:

1. Employees were required to work a 24 hour shift (locked in) at a correctional facility located in the metropolitan area in which they live;
2. Employees were required to work long hours, but not locked in, at a correctional facility located in their home metropolitan area;

3. Employees were required to work long hours at facilities, including correctional facilities, located outside the metropolitan area in which they live.

You have asked whether the payment of the child care expenses in the circumstances outlined above would be considered a taxable employment benefit, and whether it would be subject to Canada Pension Plan ("CPP") contributions and Employment Insurance ("EI") premiums.

Our Comments

Paragraph 6(1)(a) of the Income Tax Act (the "Act") includes in an employee's income the value of any benefit received or enjoyed by the employee in respect of his or her employment. It is our view that, where an employer reimburses an employee for the cost of a personal expense incurred by the employee, or where such an expense is paid directly by their employer, then the employee will normally be considered to have received a taxable employment benefit. Accordingly, payments made by an employer to cover the cost of child care expenses incurred by an employee would generally constitute a taxable employment benefit to the employee.

The Canada Customs and Revenue Agency ("CCTA") has a longstanding administrative position that provides an exception to this general position. Where additional child care expenses are incurred because an employee is required by the employer to travel out of town on employment-related business, then the reimbursement of these additional child care costs will not be considered a taxable employment benefit.

With respect to the scenarios outlined above, the employer's payment of the child care expenses in the first two instances would result in a taxable employment benefit to the employees because the additional child care costs were not incurred to enable the employee to undertake employment-related travel. The reimbursement would also be subject to CPP contributions and EI premiums. If the employer paid the child care service provider directly, the amount would still be considered a taxable benefit and be subject to CPP contributions, but would not be subject to EI premiums.

In the third situation, in which the employees were required to work at facilities located outside the metropolitan area in which they live, the reimbursement of additional child care costs incurred as a result of the travel requirement would generally fall within the administrative exception outlined above, and thus not be considered a taxable benefit from employment.

Finally, you have asked us to provide guidelines as to what is meant by a "metropolitan area" for the purposes of determining whether a child care expense reimbursement would fall within the administrative position outlined above. It is our view that, in order for the child care reimbursement to be non-taxable, similar requirements to those set out in subparagraph 6(1)(b)(vii) of the Act must be met. Essentially, the employees must be required to travel away from the municipality, and the metropolitan area if there is one, where their regular place of work is located. In effect, the employees would be in "travel status".

We trust that our comments will be of assistance.

Yours truly

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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