23 October 2015 External T.I. 2015-0614231E5 F - Frais de garde subventionnés -- translation

Principal Issues: 1) Can the CRA confirm that the Additional Subsidized Childcare Contribution in Quebec is deductible in computing an individual's income; 2) If yes, can the CRA confirm in which year an individual may deduct this additional contribution; 3) What documents should an individual provide to justify the deduction claimed with regard to the additional contribution on his/her income tax return?

Position: 11) Generally, the Additional Subsidized Childcare Contribution in Quebec constitutes fees incurred in a taxation year for the purpose of providing in Canada child care services of any child for the purposes of the definition of "child care expense" in subsection 63(3) of the ITA; 2) The additional contribution which meets all the conditions for constituting a deductible “child care expenses” may be deducted in 2015 if the subsidized childcare services were rendered during 2015, even if the calculation of this additional contribution occurs when a person files his/her Quebec income tax return for the taxation year 2015. / 3) The CRA is currently studying the issue.

Reasons: 1) The Law; 2) The Law and the CRA’s administrative position on the meaning of the word “Paid” for the purposes of section 63. (See F2015-059565)

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2015-061423
Anne Dagenais, Avocate, M. Fisc.

October 23, 2015

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Subject: Additional Subsidized Childcare Contribution in Quebec

Please find attached our response to the question that was posed to us during the CRA Federal Tax Roundtable at the annual 2015 APFF Conference.

We trust that these comments will be of assistance.

Sincerely,

Michel Lambert, CPA, CA, M. Fisc.
Manager
Business Employment Income Division
Income Tax Rulings Directorate
Legislative Policy
and Regulatory Affairs Branch

Attachment

c.c. XXXXXXXXXX

9 October 2015 CRA Federal Tax Roundtable

2015 APFF Conference

Question 5 Additional contribution for subsidized child care in Quebec

Since April 22, 2015, a new measure has changed the rates for subsidized child care in Quebec. The amended rates (for the period from April 22, 2015 to December 31, 2015) include a core contribution of $7.30 per day, per child, which is paid directly for child care, and an additional contribution scaled to family income (of up to $12.70 per day, per child), which will be payable to the Québec Revenue Agency ("ARQ") when filing income tax returns for 2015 (in the spring of 2016).

Under section 173 of Bill 28 (of the Quebec government) which was approved on April 21, 2015, a new educational fund for childcare services will be established and will be used exclusively to finance subsidized educational childcare. The additional contribution paid by affected individuals will be credited to this fund.

On December 2, 2014, the Minister of National Revenue confirmed that the additional contribution for subsidized child care would be deductible in computing the income of an individual as federal child care expenses.

In terms of the year in which the additional contribution will be deducted federally, our understanding is that it should be for the year 2015, the year in which the care was provided to the child. Even if the additional contribution will be paid in 2016, the wording of section 63 of the Act seems absolutely clear on this point. The expenses that can be deducted in computing the individual's income appear to be the expenses incurred for services rendered during the year. The only clarification regarding the payment is that fees must be paid by the taxpayer or the supporting person of the child for the year. Nothing indicates that the fees must be paid in the year (eg, 2015) to be deductible in that year (2015).

Moreover, in this regard, Quebec's interpretation 05-010573 of October 19, 2005 states that the amount appearing on the RL-24 slip is the actual amount paid on the date of issuance of the slip. Although this is a Quebec interpretation, after a comparison of the federal and Quebec legislation relating to the definition of "child care expense" (as well as subsection 63(2.3) of the Act), the conclusion should be the same federally. Federally, it refers to an expense incurred in a taxation year for the purpose of providing child care services. The federal legislation, as with the Quebec legislation, does not expressly state that the amount is to be paid in the year or during the year.

Questions to the CRA

(a) As the Quebec bill was approved after the announcement of the Minister of National Revenue in December 2014, can the CRA confirm that the additional contribution for subsidized child care in Quebec will in fact be deductible in computing the income of an individual?

(b) If the additional contribution is deductible in computing the income of an individual, would the CRA specify in which year an individual may deduct the additional contribution? For example, would the additional contribution paid in the spring of 2016 in respect of child care received in 2015 be deductible in 2015 or 2016?

(c) What documents must an individual provide to support the deduction claimed for the additional contribution in his or her income tax return?

CRA Response

Response to Question (a)

The additional contribution for subsidized childcare in Quebec (the "Additional Contribution") pursuant to section 88.2 of the Educational Childcare Act (footnote 1) could, depending on the circumstances, be "child care expenses" within the meaning of that term in subsection 63(3) of the Act. Indeed, the additional contribution is for expenses incurred during a taxation year for the purpose of providing in Canada, for an eligible child of a taxpayer, child care services including babysitting services, day nursery services or services provided at a boarding school or camp. In addition, to qualify as child care expenses in subsection 63(3) of the Act, the child must be an "eligible child" according to the definition of that term in subsection 63(3) of the Act, and other conditions in the definition of "child care expenses" must be met.

Response to Question (b)

Child care expenses are deductible provided that inter alia they are in respect of child care expenses incurred for services rendered during the year. Therefore, an Additional Contribution that meets all the requirements for deductibility under subsection 63(1) of the Act as a child care expense may be deducted in computing the taxpayer's income in 2015 if the subsidized child care services were rendered during 2015, even if the calculation of the Additional Contribution is made when the individual's Québec income tax return for 2015 is completed in 2016.

Furthermore, for purposes of the deduction of child care expenses, they must be "paid". The CRA will consider that this condition is satisfied at the time of filing of the federal income tax return for 2015 if the additional contribution is paid to the Quebec Minister of Revenue by the due date applicable for that year. In this regard, the due date is defined in section 88.1 of the Educational Childcare Act (footnote 2).

Response to Question (c)

The CRA is currently studying this issue.

FOOTNOTES

Due to our systems requirements, page footnotes contained in the original document are reproduced below:

1 Educational Childcare Act, CSQ, C. S-4.1.1.
2 Ibid.