28 October 2002 External T.I. 2002-0161525 - EMPLOYER-PROVIDED 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:

Whether the provision of emergency child care by an employer constitutes a taxable benefit.

Position TAKEN:

Yes.

Reasons:

The provision of child care is the payment for a personal expense. The parameters of the program do not fall within the CCRA's administrative position regarding the provision of in-house childcare by an employer.

XXXXXXXXXX 		2002-016152
T. Young, CA
October 28, 2002

Dear XXXXXXXXXX:

Re: Employer-provided Child Care Services

This is in reply to your letter of September 9, 2002, requesting our views on the above-mentioned subject. We also acknowledge our various conversations (Young/XXXXXXXXXX ) prior to your submission.

In your letter you describe an "emergency" child care service recently set up by your company (the "Employer") at its head office. The Employer has contracted with a professional child care services provider, which operates the on-site facility and is paid for its services by the Employer. The service will be made available to all employees of the Employer and of companies within the related group of companies (the "Employees").

The child care service is intended to be used for "emergencies", i.e., as a backup, rather than as a replacement for a parent's regular child care arrangements. For this reason, each Employee will normally be limited to XXXXXXXXXX uses per child, per year.

The Employer's goal, in providing this service, is to enable Employees, faced with an interruption in regular child care, to attend work and, in so doing, to minimize the inconvenience and disruption to the Employer's business. Such disruption can be particularly acute where such lapses in child care occur without sufficient advance notice.

The Employer will absorb costs relating to the provision of child care services to the children of Employees and such Employees will, at most, be charged a nominal fee for use of the centre.

Our Comments

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 submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. However, we are prepared to provide the following comments, which may be of assistance to you.

Paragraph 6(1)(a) of the Income Tax Act (the "Act") includes in an employee's income the value of any benefit received or enjoyed by the employee in respect of his or her employment. It is our view that, where an employer reimburses an employee for the cost of a personal expense incurred by the employee, or where such an expense is paid directly by their employer, then the employee will normally be considered to have received a taxable employment benefit. Accordingly, the provision of child care by an employer to employees usually triggers a taxable employment benefit to the employee.

While paragraph 6(1)(a) of the Act requires an employee to include in income the value of any benefit of any kind whatever received or enjoyed in respect of, in the course of, or by virtue of employment, with the exception of the statutory exclusions. Furthermore, paragraphs 27 to 47 of Interpretation Bulletin IT-470R "Employees' Fringe Benefits" set out the CCRA's position with respect to certain other situations in which we accept that no taxable benefit accrues to an employee.

We consider the term "in-house child care" in the sense of a child care facility that is managed directly by an employer irrespective of the actual location of that facility. It can be distinguished from child care, which is provided by a third party, be it a non-profit organization or a consortium of employers wishing to provide the service to their employees. While our general administrative position on "in-house child care" is that no amount is included in an employee's income from the use of child care facilities managed by the employer and available to all employees for little or no cost, this position does not apply when the employer makes the facilities available to non-employees at rates in excess of what is charged to employees.

Based on the information provided, XXXXXXXXXX, it is our view that the CCRA's administrative position does not apply to the employer-provided child care described above:

? The services are provided by a third party. It is our understanding that the child care provider rents the premises and provides all leasehold improvements, equipment and staff.

? The service may be provided to individuals other than children of Employees. Under the terms of the contract, the child care provider has XXXXXXXXXX spaces. XXXXXXXXXX. The Employer may propose to the child care provider to sell units to other parties under certain predefined conditions.

As a result, the provision of emergency child care to the Employees would constitute a taxable benefit.

We have also sent a copy of this letter to XXXXXXXXXX, who is in agreement with our position.

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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