Citation: 2006TCC501
Date: 20060908
Docket: 2006-1305(IT)I
BETWEEN:
DEBORAH JONES,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] The question in this appeal is whether an after-school recreational program is a "child care service" for purposes of the child care expense deduction in the Income Tax Act.
[2] Under section 63 of the Act, a taxpayer is permitted to deduct child care expenses for children under the age of 16, subject to specified limits, if the child care service is provided to enable the taxpayer to work.
[3] The relevant part of the definition of "child care expense" in s. 63(3) provides:
"child care expense" means an expense incurred in a taxation year for the purpose of providing in Canada, for an eligible child of a taxpayer, child care services including baby sitting services, day nursery services or services provided at a boarding school or camp if the services were provided
(a) to enable the taxpayer, or the supporting person of the child for the year, who resided with the child at the time the expense was incurred,
(i) to perform the duties of an office or employment,
(ii) to carry on a business either alone or as a partner actively engaged in the business,
...
except that
(c) any such expenses paid in the year for a child's attendance at a boarding school or camp to the extent that the total of those expenses exceeds the product obtained when the periodic child care expense amount in respect of the child for the year is multiplied by the number of weeks in the year during which the child attended the school or camp, and
(d) for greater certainty, any expenses described in subsection 118.2(2) and any other expenses that are paid for medical or hospital care, clothing, transportation or education or for board and lodging, except as otherwise expressly provided in this definition,
are not child care expenses; (Emphasis added)
[4] In a return of income for the 2004 taxation year, Deborah Jones claimed a deduction for fees paid to the Duncan Dynamics Gymnastics Club totaling $1,415. The fees were paid for gymnastics classes attended by her daughter who was 12 and 13 years of age during the relevant period. A portion of the amount claimed, $984, was for after-school classes and the remainder, $431, was for summer and spring break gymnastics camps.
[5] By way of a reassessment dated August 22, 2005, the Minister of National Revenue allowed the deduction in respect of the gym camps but disallowed the deduction in respect of after-school classes. Ms. Jones appeals that reassessment.
[6] The appellant is employed in Duncan, British Columbia as a certified general accountant. According to her testimony, she needed to make arrangements for the care of her daughter after school until she finished work. Ms. Jones did not have a lead on an available baby sitter, and she looked for an arrangement that was affordable and acceptable to her daughter.
[7] The solution that Ms. Jones adopted involved enrolling her daughter in gym classes twice a week during the school term. For the other week days, the daughter either attended extra-curricular activities at the school or she waited after school at her mother's office.
[8] The gym classes started at 3:30 p.m. when school ended and each session lasted either two or three hours. Ms. Jones usually left the office briefly to drive her daughter to the classes.
[9] One of the reasons that Ms. Jones appealed the assessment was that it did not make sense to her to allow the deduction for the gym camps and disallow the deduction for after-school classes. Ms. Jones was told by the auditor that her daughter was considered old enough to stay home alone after school and that child care was not needed for that portion of the day. Ms. Jones agrees that her daughter was old enough to go home after school but she stated that her daughter refused to be at home alone until quite recently.
[10] On cross-examination, Ms. Jones was asked why her daughter did not simply wait at the office for her mother. Ms. Jones testified that this was a possibility but that it was not ideal because it was difficult to work with a child under foot. The arrangement that was made was described by Ms. Jones as a compromise solution that was more or less workable and affordable.
Analysis
[11] The question to be decided is whether the after-school gym classes that were attended by Ms. Jones' daughter were "child care services" for the purpose of the deduction for child care expenses.
[12] Section 63 does not contain an all-encompassing definition of "child care services" but the following services are specifically included: baby sitting, day nursery, and services provided at a boarding school or camp.
[13] Based on the reported decisions, it appears that taxpayers have generally been unsuccessful in this Court in deducting fees for recreational activities as child care expenses. Counsel for the Crown referred me to the following cases, all of which were oral decisions of this Court: Levine v. Queen, [1996] 2 C.T.C. 2147; Keefer v. The Queen, [2000] 2 C.T.C. 2622; Bellv. The Queen, [2001] 1 C.T.C. 2308; Sykes v. The Queen, [2005] 3 C.T.C. 2054.
[14] In many of these cases, it was not clear from the evidence that the recreational activity was really required to enable the parents to work. But the courts also noted that recreational activities such as piano lessons and gym classes generally lack an essential characteristic of child care, which is to "watch over" or "protect" the child.
[15] To determine whether an activity is a "child care service" in a particular case, I agree with the test recently described by Rip J. in Bailey v. The Queen, 2005 D.T.C. 673 (T.C.C.). The essential question is what is the primary reason for enrolling the child in the activity.
[16] In Bailey, a mother claimed a deduction for fees paid to a private school for a child who was just shy of the age requirement for starting public school. The judge considered all the circumstances and concluded that the taxpayer's purpose in enrolling the child in the school was for child care and that the educational aspect was incidental.
[17] The Crown in Bailey argued that the service provided by the private school was essentially education and as such the fees were subject to the exclusion for "education" in the definition of "child care expense."
[18] Justice Rip rejected this argument on the ground that it would defeat the object of the legislation which was to assist working parents with child care expenses. At paragraph 13, he stated:
The legislative intent in enacting this provision was to assist parents who work by subsidizing child care expenses in the form of a deduction. Given that goal, it is difficult to accept the Minister's conclusion that any expense related to looking after the child of a working parent should be denied solely because it included an educative element. Such an interpretation would clearly undermine the intent of the Parliament for it would likely exclude all types of child care expenses, especially those in respect of a young child; for to a young child almost all positive interaction serves as education - be it through discipline, television shows, stories or games.
[19] In my view, similar considerations apply to recreational activities. An expense that otherwise is a bona fide child care expense should not be disallowed only because the activity is recreational in nature.
[20] The decisions dealing with recreational expenses are generally consistent with the test set out in Bailey and look to the principal purpose of the expenditure. For the most part, the decisions do not stand for the proposition that recreational activities such as gym classes can never be child care services, and I think that such an interpretation would be inconsistent with the purposive interpretation of the legislation described in Bailey.
[21] In the circumstances of this case, I find that the main purpose for the enrollment of Ms. Jones' daughter in after-school gym classes was to provide child care so that she was able to perform duties of employment.
[22] Ms. Jones was a credible witness who gave a detailed and forthright account of the circumstances surrounding the expenses at issue. Based on her testimony, I accept that she decided to enroll her daughter in the gym classes to accommodate her employment duties.
[23] It was not a realistic option for Ms. Jones' daughter to stay home alone when the daughter refused to do so. And while the daughter could have waited at her mother's place of work, this clearly was not an ideal alternative.
[24] I am satisfied that the after-school lessons were reasonable child care arrangements in the circumstances and that the expense was incurred to enable Ms. Jones to perform duties of employment. I also agree with the submission of Ms. Jones that because the legislation allows the deduction in respect of children up through the age of 15, it is appropriate to allow deductions for activities appropriate for the age of the child.
[25] I conclude, therefore, that on the facts of this particular case the fees paid by Ms. Jones for after-school gym classes qualify for the deduction in section 63 of the Act. The appeal is allowed, with costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that Ms. Jones is entitled to deduct additional child care expenses in the amount of $984.
Signed at Toronto, Ontario, this 8th day of September, 2006.
Woods J.
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