3 August 2001 External T.I. 2001-0086185 - employee adop. exp. paid by employer

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 Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Where an employer pays all or part of the cost of an employee to adopt a child:

(1) Are the amounts a taxable benefit to the employee?

(2) Is the employer entitled to a deduction in computing its business income for the amount?

Position:

(1) Yes.

(2) Qualifies for purposes of 18(1)(a); some other provision may restrict the deductibility, such as section 67 for reasonableness.

Reasons:

(1) Paragraph 6(1)(a).

(2) Paragraph 18(1)(a).

XXXXXXXXXX 	2001-008618
		Randy Hewlett, B.Comm.
August 3, 2001

Dear XXXXXXXXXX:

Re: Employee Adoption Expenses Paid By Employer

We are writing in response to your letter dated May 22, 2001, wherein you requested our opinion on the tax implications to an employee and employer, where the employer pays the full or part of the cost of an employee to adopt a child. You wish to know if the payment constitutes a taxable benefit to the employee or the adopted child, and if the amount qualifies as a deductible expense for the employer.

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 offer the following general comments.

Paragraph 6(1)(a) of the Income Tax Act (the Act) requires an employee to include in income the value of benefits "of any kind whatever received or enjoyed" in respect of the office or employment. In our view, where an employer reimburses the employee or directly pays any personal expense of the employee, including the cost of adopting a child, the amount is a taxable benefit to the employee unless some specific provision of the Act provides for an exception otherwise. Where the Act does not provide an exception, the value of the benefit is required to be included in computing the employee's income from the office or employment in the year received.

Where the employer incurs a cost to provide benefits to employees, the amount will normally be considered to have been incurred for the purpose of earning business income under paragraph 18(1)(a) of the Act. The deductibility of the amount by the employer, while satisfying the conditions of paragraph 18(1)(a) of the Act, may be restricted by some other provision. For example, the amount would also have to be reasonable in accordance with section 67 of the Act.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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