3 September 2003 External T.I. 2003-0021505 - 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 ("Individual A" and "Individual B"), who are separated, have two young children. Individual A with whom the children reside, pays the full amount of the child care expenses. As the child care expenses are shared by the two individuals on the basis of their income, Individual B reimburses Individual A for the appropriate portion of the expenses. To what extent is Individual A entitled to deduct child care expenses.

Position. Individual A is only entitled to deduct child care expenses to the extent of her share of the costs, provided she meets all the other requirements to deduct such amount.

Reasons: Paragraph 63(1)(d) of the Income Tax Act provides that a taxpayer is only entitled to deduct child care expenses to the extent that any taxpayer was not entitled to a reimbursement or any other form of assistance for the expenses (unless the reimbursement or assistance is included in a taxpayer's income and is not deductible in computing the taxpayer's taxable income).

XXXXXXXXXX 2003-002150
M. Eisner, CA
September 3, 2003

Dear XXXXXXXXXX:

Re: Child Care Expenses

We are writing to you in respect of your submission made to the XXXXXXXXXX Tax Services Office concerning the above-noted subject.

In the circumstances of your situation, you and your spouse were married in 1994 and have two young children. Pursuant to a written separation agreement (the Agreement") dated XXXXXXXXXX, you and your spouse, as a result of irreconcilable differences, began to live separate and apart in XXXXXXXXXX and intend to continue to do so. The two children reside with you at your residence while your spouse has limited access to the children (e.g., they may stay with your spouse every second weekend). With respect to day care costs for the children while you are working at your place of permanent employment, the Agreement provides that you and your spouse are each responsible for a share of such costs on the basis of your respective incomes. Pursuant to the Agreement, you pay the full amount of the day care expenses and your spouse pays his share of the expenses to you.

You enquire whether you can deduct the full amount of child care expenses.

Our Comments

For your information, we are enclosing a copy of Interpretation Bulletin IT-495R2 which generally discusses child care expenses. 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. However, we are prepared to provide the following comments which are of a general nature only and are based on the assumptions that (i) you and your 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) and you continue to live separate and apart, (ii) there is no "supporting person", as defined in subsection 63(3) of the Act, in respect of you for the year (see paragraph 8 of IT-495R2), and (iii) the children reside with you at the time that the child care expenses were incurred.

In a situation where parents are separated and there is no supporting person (as described above), a 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, amongst other requirements, the expenses were incurred at the time the parent resided with the child and only to the extent 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). However, paragraph 63(1)(d) of the Act provides that a taxpayer is only entitled to deduct child care expenses to the extent that any taxpayer was not entitled to a reimbursement or any other form of assistance for the expenses (unless the reimbursement or assistance is included in a taxpayer's income and is not deductible in computing the taxpayer's taxable income - see paragraph 16 of IT-495R2). As a result of this provision, you would only be entitled to deduct child care expenses net of the reimbursement or assistance you are entitled to receive from your spouse for these expenses, provided you meet all the other requirements to deduct this remaining portion of the expenses.

We trust that our comments are of assistance to you.

Yours truly,

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

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