13 April 2005 External T.I. 2004-0104911E5 - 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.

SUBJECT: Child care expenses

Principal Issues: Reasonableness of allocation of a private school's fees between education and child care services.

Position: General comments.

Reasons: Question of fact

XXXXXXXXXX 2004-010491
S. Parnanzone
April 13, 2005

Dear XXXXXXXXXX:

Re: Technical Interpretation Request: Deductibility of Childcare Expenses

This is in reply to your letter of November 24, 2004, regarding child care expenses.

You described a situation involving an unnamed private school, which is not a boarding school, that charges fees with no breakdown between childcare and education services. The school's intention is to notify the students' parents in writing once a year of the portion of the fees that is eligible for a deduction as child care expenses. This portion would be determined based upon an analysis of the school's curriculum and activities as well as supervised activities provided by third parties.

You provided a table breaking down the hours spent for instruction, lunches and, an item you called "childcare" for three student groupings, namely grade 1-8, preschool, and Kindergarten. In your letter, you also provided a table showing the percentage of the school fees that, based on your analysis, would be eligible for a deduction as child care expenses.

You asked two questions. The first question concerns the reasonableness of the percentage of the school fees allocated to child care expenses. Your second question is whether the school's annual written notification to the student's parents of the portion of the school fees eligible for an income tax deduction as child care expenses and the parents' evidence of payment of the fees themselves are sufficient documentation for purposes of the child care expenses deduction under section 63 of the Income Tax Act ("Act").

Our comments

Regarding your first question, we are unable to advise whether your calculation of the portion of the school fees that would be eligible for deduction as child care expenses under section 63 of the Act is reasonable. This is a question of fact requiring a review of all relevant facts and documentation. We will, however, offer the following general comments as guidance.

As indicated in paragraph 3 of Interpretation Bulletin IT-495R2, Child Care Expenses, no amount of an expense incurred in respect of education may be used in the calculation of the amount deductible as a "child care expense," as this term is defined in subsection 63(3) of the Act. 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.

It is not possible to provide guidelines, in terms of percentages of total fees or otherwise, as to what portion, if any, of the fees paid to a particular educational institution might qualify as a child care expense. If, for example, the fees charged by an educational institution include supervisory child care before and after school for those students who require such service, the portion of the fees that relates to such service qualifies as an eligible child care expense, provided that the institution is prepared to make a reasonable allocation between the "education" and "child care" costs. On the other hand, for those students who do not use such services before or after school, no amount of the fees paid on their behalf can be considered as a child care expense.

With respect to the supervision of children during the lunch hour, it should be noted that the definition in the Act of "child care expense" excludes the cost of meals or board.

Although the fees charged by an educational institution in respect of children below the regular age for starting school (generally pre-kindergarten) will normally qualify as child care expenses, nevertheless we are unable to confirm a position that states that all programs for children below a specific age are not in the nature of education. In this regard, a program of education can be distinguished from child care in that a program of education is more goal-oriented and the child is expected to learn skills and progress through a planned program of instruction whereas a child in a child care setting is not expected to achieve any specific educational goals.

When an educational institution offers a full day kindergarten program, no amount of the fees payable for such program is deductible as a child care expense. On the other hand, if an educational institution provides a separate or additional program of child care in addition to a half day or alternate day kindergarten program, the portion of the fees related to the child care program would qualify as a child care expense.

Regarding your second question on the documentation for claims of child care expenses, this is discussed in paragraph 18 of IT-495R2. However, we would add that receipts for child care expenses should be made out to the individual who paid for them.

In a situation in which an educational institution provides education and child care services, it is not mandatory that child care services be billed separately. A written allocation, supported by facts, of the school charges paid for a particular year between education and child care services rendered in the particular year and proof of the actual payment of the school charges would be acceptable as evidence for the purpose of the child care expenses deduction.

Yours truly,

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