19 March 2012 External T.I. 2011-0404311E5 - 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.

Principal Issues: Are payments that have been made to hold a day care position during a maternity leave of absence from employment deductible under subsection 63(1) of the Income Tax Act?

Position: Assuming all other conditions to qualify as a child care expense are met, with respect to child care payments being made during a taxpayer's temporary leave of absence from employment, fees paid to maintain a place in a day nursery or to ensure babysitting services would qualify as a child care expense where the taxpayer remained employed during the temporary leave of absence and the payments were made with the eventual aim of enabling the taxpayer to return to work with the same employer.

Reasons: The purpose test in section 63 of the ITA would not require that the child care expense be incurred at the same time as the resumption of the activity carried on before the temporary leave of absence.

XXXXXXXXXX
									2011-040431
									N. Shea-Farrow
March 19, 2012

Dear XXXXXXXXXX :

Re: Technical Interpretation Request - Child Care Expense Deduction

We are writing in response to your letter of April 20, 2011 concerning the deductibility of child care expenses under subsection 63(1) of the Income Tax Act (the "Act") where payments have been made to hold a day care position during a maternity leave of absence from employment.

The family moved while the mother is on maternity leave. One child is sent to a new day care centre after the move on a part-time basis to keep a day care spot for that child and the new child so the spots are available when the mother returns to work. The mother returned to work with the same employer after the leave.

Our Comments

Section 63 of the Act provides a deduction for amounts paid for child care expenses incurred in respect of an "eligible child" of the taxpayer. To qualify, the child care expenses must be incurred in order to enable the taxpayer, or a "supporting person" of the child, to perform duties of an office or employment, to carry on business or, in certain instances, to carry on research, or attend a designated educational institution or a secondary school. There are a number of other requirements that have to be met in order for a taxpayer to be entitled to deduct child care expenses. For more information on the rules for child care expenses, including the limits on the amount of the deduction, please refer to Interpretation Bulletin IT-495R3, Child Care Expenses, and Form T778, Child Care Expenses Deduction.

Assuming all other conditions to qualify as a child care expense are met, with respect to child care payments being made during a taxpayer's temporary leave of absence from employment, it is our view that fees paid to maintain a place in a day nursery or to ensure babysitting services would qualify as a child care expense where the taxpayer remained employed during the temporary leave of absence and the payments were made with the eventual aim of enabling the taxpayer to return to work with the same employer.

We trust these comments will be of assistance.

Yours truly,

Sharmini Ratnasingham
Assistant Director
for Director
Financial Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch