17 December 2014 External T.I. 2014-0518931E5 - Adoption Expense Tax Credit-Surrogacy

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.

Principal Issues: Do costs for a surrogacy qualify as adoption costs for the adoption expense tax credit?

Position: No.

Reasons: Only expenses incurred in the process of an adoption are eligible for the adoption expense tax credit.

XXXXXXXXXX
2014-051893
George A. Robertson,
CPA, CMA

December 17, 2014

Dear XXXXXXXXXX:

Re: Adoption Expense Tax Credit

This is in response to your correspondence asking whether the costs incurred in a surrogacy arrangement would be eligible for the adoption expense tax credit ("adoption credit"). You note that in a surrogacy arrangement the birthing party must transfer legal custody to the intended parents subsequent to the birth of the child similar to the transfer of custody in an adoption.

This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.

Section 118.01 of the Act provides a non-refundable tax credit for eligible adoption expenses incurred during the adoption period in respect of the completed adoption of an eligible child, up to a maximum amount. An "eligible adoption expense," in respect of an eligible child of an individual, means an amount paid for expenses incurred during the adoption period in respect of the adoption of that child, including

(a) fees paid to an adoption agency licensed by a provincial government;

(b) court costs and legal and administrative expenses related to an adoption order in respect of that child;

(c) reasonable and necessary travel and living expenses of that child and the adoptive parents;

(d) document translation fees;

(e) mandatory fees paid to a foreign institution;

(f) mandatory expenses paid in respect of the immigration of that child; and

(g) any other reasonable expenses related to the adoption required by a provincial government or an adoption agency licensed by a provincial government."

Subsection 118.01(1) also defines the adoption period and eligible child. The "adoption period" in respect of an eligible child of an individual begins at the earlier of the time that an application is made for registration with a provincial ministry responsible for adoption (or with an adoption agency licensed by a provincial government) and the time, if any, that an application related to the adoption is made to a Canadian court. The adoption period ends at the later of the time an adoption order is issued by, or recognized by, a government in Canada in respect of that child, and the time that the child first begins to reside permanently with the individual. An "eligible child" is a child who has not attained the age of 18 years at the time the adoption order is issued by or recognized by a government of Canada in respect of that child.

As these definitions demonstrate, the adoption credit is very specific to the process of adoption. It is our understanding that surrogacy arrangements do not involve an adoption, and as such, in our view, costs incurred in a surrogacy arrangement would not be eligible for the adoption credit.

We trust that these comments will be of assistance.

Yours truly,

Pamela Burnley, CPA, CA
Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate