8 October 2002 External T.I. 2002-0155775 - CHILD CARE EXPENSES

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: Two individuals who have separated have joint custody of their child. Where one parent pays 100% of the child care expenses, is such a parent entitled to deduct the full amount pursuant to subsection 63(1)?

Position: In a true 50/50 custody arrangement, the parent would only be entitled to deduct 50% of the child care costs.

Reasons: Individual A is entitled to claim child care expenses; but only to the extent that they were, inter alia, incurred with respect to a period of time that the Child resided with him and enabled Individual A to engage in the activities listed in paragraph (a) of the definition of "child care expense" in subsection 63(3) of the Act.

2002-015577
XXXXXXXXXX Karen Power, CA
(613) 957-8953
October 9, 2002

Dear XXXXXXXXXX:

Re: Child Care Expenses

This is in reply to your email of August 6, 2002, requesting clarification of the position outlined in a recent technical interpretation E2001-009222 dated November 15, 2001.

You have described the following hypothetical situation:

1. A and B are separated in 2001, and they remain separated throughout 2002. They each maintain a separate residence and neither has a supporting person.

2. A and B, by mutual agreement, have joint custody of their child (an "eligible child" as defined in subsection 63(3) of the Income Tax Act (the "Act").

3. When their child is not in child care, the child spends 50% of his time with each of A and B at their respective residences.

4. Both A and B work outside the home. A's income for purposes of the Act is higher than B's.

5. By mutual agreement, A has agreed to be responsible for the care of the child while both parents are at work. As a result, A pays all of the child care expenses. A will not be entitled to reimbursement from B for the child care expenses that he pays.

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 submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office.

As discussed in our recent technical interpretation, in order to determine whether any particular individual is entitled to deduct child care expenses by virtue of section 63 of the Act, it is necessary to review all the relevant facts and documentation. However, we are prepared to provide the following general comments which are of a general nature only.

As discussed in interpretation letter E2001-009222, it is our view that each parent, in a shared custody arrangement (with no supporting person), would be entitled to claim the amounts he or she paid in respect of child care expenses incurred in a taxation year for an "eligible child", as defined in subsection 63(3) of the Act, if inter alia, the expenses were incurred at the time the parent resided with the child and only to the extent that they were paid by that parent to enable the parent to engage in the activities listed in paragraph (a) of the definition of "child care expense" in subsection 63(3) of the Act. The requirement that the parent reside with the child at the time the expenses are incurred is specifically provided for in paragraph (a) of the definition of "child care expense".

Rules of statutory construction generally provide that where in the same Act, and in relation to the same subject matter, different words are used such choice of different words must be considered intentional and indicative of a change in meaning or a different meaning. In our view, the words "resided with" require that the child be physically resident with the parent (i.e. in the parent's custody) at the time that such parent incurs the child care expenses. If a physical presence were not required, Parliament could have simply required that the taxpayer meet a responsibility test rather than having to "reside with" the child.

In the situation you describe, we confirm that it is our view that A would only be entitled to deduct 50% of the child care expenses he incurs because the child resides with him only 50% of the time. In addition, it is also a question of fact whether the child care expenses incurred during the period in which the child is residing with the other parent were incurred to enable the taxpayer to earn income for that period.

We trust that our comments are of assistance to you.

Yours truly,

Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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