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.