6 September 2002 External T.I. 2002-0155055 - SUBSIDIZATION 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 subsidization of temporary child care services by an employer results in a taxable benefit to the employees

Position: Yes

Reasons: Consistent with prior opinions

XXXXXXXXXX 2002-015505
Wayne Antle
September 6, 2002

Dear XXXXXXXXXX:

Re: Subsidization of Child Care Expenses

This is further to your letter of July 29, 2002, concerning whether the subsidization of temporary child care expenses by an employer would be considered a taxable employment benefit.

In your letter, and our telephone conversation on September 4, 2002 (Antle/XXXXXXXXXX), you summarized the facts as follows:

The employer has established a program whereby it provides, through an external child care service provider, temporary child care services to its employees when their normal child care service provider is not available. Employees must register for the program, and they can use this service for up to XXXXXXXXXX days per year. The total cost of the program is $XXXXXXXXXX per child per year. The employer pays the child care service provider one half of the total cost, and the employee is responsible for paying the remainder.

Our Comments

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 income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following 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.

In our view, employees who participate in the employer's temporary child care program described above would be considered to have received a taxable employment benefit equal to the amount subsidized by the employer.

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