15 November 2001 External T.I. 2001-0092225 - JOINT CUSTODY & CHILD CARE

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 ("Individual A" and "Individual B"), who have separated from each other, share the custody of their child. In XXXXXXXXXX , a court order (the "Order") was issued which provided that, with respect to child care expenses, Individual A was to pay 60% and Individual B was to pay 40%. When one of these individuals paid 100% of the expenses to the caregiver, the other party would make the appropriate reimbursement. Can Individual A, who reimbursed Individual B, claim his 60% share of the expenses under subsection 63(1) of the Income Tax Act (the "Act")? Individual B refuses to provide any receipt with respect to the child care expenses.

Position: File referred to the TSO for action. 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. By virtue of paragraph 63(1)(d) of the Act, Individual B cannot claim a deduction in respect of the expenses for which she was entitled to a reimbursement from Individual A.

Reasons: Since each parent resides with the child where there is shared custody and assuming that neither is residing with a "supporting person" during the year, each parent could claim child care expenses incurred in a taxation year for an eligible child 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 noted above. However, each parent must substantiate his or her claim with a receipt from the "payee" as required by subsection 63(1) of the Act. Given the circumstances, the TSO may wish to consider an alternate arrangement for Individual A to substantiate his claim.

		November 15, 2001

	Surrey Tax Services Office	HEADQUARTERS
	Sekhon Devinder	M. Eisner
	Assistant Director	(613) 957-2138
	Client Services Division
		2001-009222

Child Care Expenses - XXXXXXXXXX

As discussed with you on October 31, 2001, we are replying to you in respect of the enclosed letter, which was dated July 11, 2001 and concerns the above-noted subject. Excerpts from a court order dated XXXXXXXXXX (the "Order") were attached to the letter.

The scenario under consideration involves a child (the "Child") and her separated parents ("Individual A" and "Individual B"). The letter indicates that, pursuant to the Order, Individual A and Individual B have joint custody of the Child with each parent having primary residence. In the case of day care costs in respect of the Child, the Order provides that Individual A is required to pay 60% of the expenses and Individual B is required to pay 40% of the expenses. The Order also provides that whichever of Individual A or Individual B pays the expenses, that individual will be entitled to a reimbursement from the other individual for the other individual's respective portion of the expenses. At the present time, Individual B is paying the full amount of the day care costs to the caregiver and Individual A is reimbursing Individual B for 60% of the costs. However, Individual B refuses to provide Individual A with a receipt on the basis that Individual B feels that the related cancelled cheques qualify as receipts.

Individual A has asked us whether he is entitled to deduct his share of the day care expenses.

Our Comments

In order to determine whether any particular individual is entitled to deduct child care expenses by virtue of section 63 of the Income Tax Act (the "Act"), it is necessary to review all the relevant facts and documentation. In this regard, the CCRA's general position on the deductibility of child care expenses under section 63 of the Act is set out in Interpretation Bulletin IT-495R2. However, we are making the following comments on the basis of the information provided to us and on the basis that Individual A and Individual B were living separate and apart before, and throughout, the relevant year because of a breakdown of their marriage (i.e., it is not the year of the breakdown), they continue to live separate and apart, and there is no "supporting person", as defined in subsection 63(3) of the Act, in respect of either of these two individuals for the year.

Since each parent resides with the child where there is shared custody (and there is no "supporting person" as noted above), it is our view that each parent could 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 (see also paragraph 1 of IT-495R2).

We would generally expect that each parent obtain a receipt from the caregiver for his or her share of the child care expenses paid by the parent; however, the circumstances under consideration are somewhat different because Individual B is paying the caregiver for child care services provided to the Child in respect of Individual A and herself and is receiving a reimbursement of 60% of the costs from Individual A. While it appears that the caregiver would issue Individual B a receipt for the full amount of the child care costs, it should be noted that Individual B could not claim a deduction for more that 40% of the total child care costs because paragraph 63(1)(d) of the Act prevents her from claiming child care costs for which she was entitled to a reimbursement from Individual A (also see our comments on the definition of "child care expense" set out below). With respect to Individual A, it is our view that he would fall within our position on joint custody set out above; however, he must comply with the requirement in subsection 63(1) of the Act that a claim be substantiated by receipts issued by the "payee". As the payee is generally the caregiver, it does not appear that the Act contemplated the above type of scenario. Although this is an issue that should ultimately be resolved between Individual A, Individual B, and the caregiver, we would not object, given the circumstances, if alternate arrangements were made by your Office for Individual A to substantiate his claim.

As a further comment, we have noted that the Order indicates that while each of Individual A and Individual B has relatively equal time with the Child, Individual A pays 60% of the costs for the care of the Child and Individual B pays the other 40%. In relation to this comment, the definition of "child care expense" in subsection 63(3) of the Act indicates, that with respect to a taxpayer, the expenses must be incurred at the time that the child resided with the taxpayer. Accordingly, you may wish to obtain information to ensure that the percentage of child expenses claimed by Individual A and Individual B corresponds with the time that the Child resided with each particular parent.

For your information, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the legislation Access Database (LAD) on the CCRA's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at (613) 957-0682. The severed copy will be sent to you for delivery to the client.

We trust that these comments will assist you in responding to the enclosed letter.

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

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