6 June 2003 External T.I. 2003-0018815 - 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: Two individuals who have separated have joint custody of their children. Where one parent pays a portion of the child care expenses, is such a parent entitled to deduct the amount pursuant to subsection 63(1)?

Position: In a 50/50 custody arrangement, the parent would only be entitled to deduct a maximum of 50% of the child care costs.

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 listed in paragraph (a) of the definition of "child care expense".

		2003-001881
XXXXXXXXXX 	Karen Power, CA
(613) 957-8953
June 6, 2003

Dear XXXXXXXXXX:

Re: Child Care Expenses

We are writing in reply to your letter of May 12, 2003, requesting clarification on your entitlement to deduct child care expenses pursuant to subsection 63(1) of the Income Tax Act (the "Act"), in a situation involving joint custody of your children.

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. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office.

In order to determine whether any particular individual is entitled to deduct child care expenses by virtue of section 63 of the Act, it is necessary to review all the relevant facts and documentation. However, we are prepared to provide the following general comments which are of a general nature only and are based on the assumption that you and your former spouse were living separate and apart before, and throughout, the relevant year because of a breakdown of your marriage (i.e., it is not the year of the breakdown), you continue to live separate and apart, and there is no "supporting person", as defined in subsection 63(3) of the Act, in respect of you and your former spouse for the year. It is our understanding that you have reviewed Interpretation Bulletin IT-495R2 which discusses child care expenses.

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 would be entitled to 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).

The requirement that the parent reside with the child at the time the expenses are incurred is specifically provided for in paragraph (a) of the definition of "child care expense". In our view, the words "resided with" require that the child be physically resident with the parent (i.e. in the parent's custody) at the time that such parent incurs the child care expenses. Accordingly, the percentage of child care expenses which you may be entitled to claim should generally correspond with the time that your children resided with you, provided you in fact paid this amount and the other requirements of section 63 of the Act have been met.

We trust that our comments are of assistance to you. Copies of Interpretation Bulletins and Information Circulars referred to herein are available on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html.

Yours truly,

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

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