14 November 2012 External T.I. 2012-0439101E5 - Child care expense deduction

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: 1. Whether a taxpayer can claim his/her children’s pre-school fees as deductible child care expenses provided under section 63 of the Act.

2. Whether a taxpayer’s physical presence at a designated educational institution is required to qualify for the deduction of child care expenses incurred under paragraph 63(3)(a)(v) of the Act.

Position: 1. Yes, unless it is clear that pre-school fees were paid in respect of a program of education.

2. Unlikely. The phrase “to attend” employed in subparagraph 63(3)(a)(v) of the Act, in and of itself, does not require a physical presence at an educational institution.

Reasons: 1. Such fees for a pre-school child are similar to fees paid for day nursery services, unless it is clear that pre-school fees were paid in respect of a program of education.

2. Case law definition of the word “attend”.

XXXXXXXXXX 2012-043910
Ananthy Mahendran

November 14, 2012

Dear XXXXXXXXXX:

Re: Deductibility of Pre-school Fees Paid

We are writing in response to your correspondence dated March 6, 2012, wherein you requested clarification on your entitlement to claim child care expenses pursuant to subsection 63(1) of the Income Tax Act (the “Act”).

In the situation you described, you paid fees for your two children to attend a pre-school in XXXXXXXXXX. Meanwhile, you were enrolled as a full time student at XXXXXXXXXX, taking online courses; you received a T2202A form for 2011 from your educational institution.

Specifically, you would like to know:

1. Whether you can claim your children’s pre-school fees as deductible child care expenses provided under section 63 of the Act.

2. Whether your physical presence at your educational institution is required to qualify for the deduction of child care expenses incurred under paragraph 63(3)(a)(v) of the Act.

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. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.

The Canada Revenue Agency’s (CRA) general position on the deductibility of child care expenses under section 63 of the Act is set out in Interpretation Bulletin IT-495R3, Child Care Expenses. It is our understanding that you have reviewed this bulletin which explains certain expressions, such as “supporting person”, “eligible child”, and “child care expense”, used in section 63 of the Act.

Section 63 of the Act provides rules for the deduction of child care expenses in computing an individual's income. Qualifying amounts paid for child care that meet the definition of "child care expense" in subsection 63(3) of the Act are deductible to a taxpayer, subject to the limitations in subsections 63(1) and 63(2) of the Act. One such limitation is that when more than one taxpayer contributes to the support of an eligible child, the child care expense deduction must generally be claimed by the taxpayer with the lower income for the year.

Child care expense is defined in subsection 63(3) of the Act to mean an expense incurred in Canada for the purpose of providing child care services including babysitting services, day nursery services or services provided at a boarding school or camp as long as the services were provided to enable the taxpayer to perform duties of an office or employment, carry on a business, carry on research or similar work or to attend a designated educational institution or a secondary school.

Based on the facts provided in your email, we understand that your children are under the compulsory school age and that your children attended a pre-school located in XXXXXXXXXX, which is the province in which you and your family reside. Unless it is clear that pre-school fees were paid in respect of a program of education, we are of the view that such fees for a pre-school child are similar to day nursery services and would meet the definition of "child care expenses" in subsection 63(3) of the Act, provided all other requirements under section 63 are met.

One of the requirements under section 63 is that the child care expenses must be incurred in order to permit a taxpayer or a supporting person of the child to engage in one of the activities listed in paragraph (a) of the definition of child care expense in subsection 63(3) of the Act. Specifically, subparagraph (v) in the definition of child care expense requires that the child care expenses must be incurred in order to permit a taxpayer or a supporting person of the child to attend a designated educational institution or a secondary school, where the taxpayer is enrolled in a program of the institution or school of not less than three consecutive weeks duration that provides that each student in the program spend not less than 10 hours per week on courses or work in the program, or 12 hours per month on courses in the program.

The term “attend” is not defined in the Act; therefore, its ordinary (dictionary) meaning prevails over its technical meaning. The dictionary definition of “attend” is broad and suggests that it could include online presence. Furthermore, to the best of our knowledge, there have not been any court decisions issued directly on the phrase “to attend” a designated institution for purposes of the child care expenses under subsection 63(3) of the Act. However, in addressing a similar issue in McGrath v The Queen, 2007 DTC 894, 2007 TCC 295, Justice McArthur of the Tax Court of Canada concluded that the definition of “attend” for purposes of the tuition tax credit should include the reality of modern technology and extend the traditional definition of the word “attend” from one requiring physical presence to one that includes online presence.

Based on our review of the dictionary and case law definitions of the word “attend”, we are of the view that the phrase “to attend” employed in subparagraph 63(3)(a)(v) of the Act, in and of itself, does not require a physical presence at an educational institution.

We trust that our comments will be of assistance.

Yours truly,

Sharmini Ratnasingham
for Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch