19 February 2003 External T.I. 2003-0000645 - CHILD CARE EXPENSES

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: In whose name should child care expense receipts be issued in situations where the fees are paid by a third party, such as the child's grandparents or a corporation, or by both parents who are living separate and apart from each other?

Position: To the payer of the fees.

Reasons: Normal business practice. Also, the rules in ITA 63 provide that in certain cases only the taxpayer that paid the fees is entitled to claim the deduction for child care expenses and in other cases the deduction can be claimed by the taxpayer or the supporting person regardless of which of the two paid for the fees.

XXXXXXXXXX 2003-000064
S. Parnanzone
February 19, 2003

Dear XXXXXXXXXX:

Re: Technical Interpretation Request: Child care tax receipts

This is in reply to your letter of January 29, 2003, and further to your recent telephone conversation with Mr. S. Parnanzone of this office, regarding tax receipts for child care expenses.

The facts as we understand them are as follows:

A portion of the fees received by the XXXXXXXXXX, a private school, in respect of a student attending the school may qualify as child care expenses for income tax purposes. XXXXXXXXXX issues receipts for the portion of the school fees that qualifies as child care expenses. You outlined two scenarios. In the first scenario, the school fees are not paid to XXXXXXXXXX by the student's parents but are paid by a third party such as the student's grandparents or a corporation. In respect of this scenario, you asked whether XXXXXXXXXX should issue the receipt for the child care expenses to the third party or to the student's parents.

In the second scenario, both of the student's parents who are living separate and apart from each other, whether or not married to each other, pay the school fees to XXXXXXXXXX. Your question in this case concerns whether XXXXXXXXXX should issue two separate receipts, one to each parent, for the actual amount paid by each parent or one receipt for the total amount with both parents' names on it.

As a result of our telephone conversation, we understand that XXXXXXXXXX enters into a contract for the payment of school fees in respect of a student either with both parents or with only one parent of the student and at that time payment procedures are established. The payment procedures deal with who will actually pay XXXXXXXXXX for the student's school fees. The payment procedures would provide, for example, that the cheques are issued by a named third party (e.g., grandparents or corporation) in the first scenario, or by the two parents in specific amounts in the second scenario.

During our telephone conversation, you also advised that your enquiry concerns only to whom the receipts for child care expenses should be issued and that our reply need not expand on the tax rules that govern the deduction of such expenses (e.g., the amounts that are eligible for deduction and who may claim them).

Our Comments

The particular circumstances in your letter on which you have asked for our views appear to be a factual situation. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a completed transaction, you should submit all relevant facts and documentation to the local tax services office for their views. However, we are prepared to offer the following general comments, which may be of assistance.

Section 63 of the Income Tax Act ("Act") permits a taxpayer to claim child care expenses as a deduction in computing his or her income. The rules are discussed in Interpretation Bulletin IT-495R2, Child Care Expenses. As stated in paragraph 2 of IT-495R2, when an educational institution offers child care as well as an educational program, only the portion of the fees paid to the institution relating to child care (i.e., supervision before and after classes or during the lunch period) may qualify as child care expenses. However, when the payment made is for a child under the compulsory school age, the services being provided are generally considered child care rather than education unless the facts indicate otherwise.

In our view, the receipts for the portion of the school fees that qualifies as child care expenses should be issued to the payor of the fees. Accordingly, in the first scenario you described, one receipt would be issued to the student's grandparents or, if applicable, the corporation. In the second scenario, two receipts would be issued, one receipt to each parent for the amount paid by each parent.

We would mention that the fact that a taxpayer has been issued a receipt does not automatically entitle that taxpayer, or any other taxpayer, to claim, in computing income for tax purposes, a deduction for child care expenses. A deduction for child care expenses must meet the requirements of section 63 of the Act. As mentioned above, the rules governing the deduction of child care expenses are discussed in IT-495R2.

The publications referred to above can be found on the Internet at www.ccra-adrc.gc.ca or can be obtained from the local tax services office.

Yours truly,

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

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