13 June 1994 Internal T.I. 9408787 - CHILD CARE EXPENSE DEDUCTION AND CHILD TAX CREDIT SUPP

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 Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether when an amount is used in the calculation of the limitation, pursuant to subparagraph 63(1)(e)(i) and no child care expenses were incurred with respect to that particular child, the amount so used should be considered to have been paid in respect of child care expenses (child care expenses claimed) for that child, thus affecting the calculation of the child tax credit supplement pursuant to subparagraph 122.2(1)(a)(ii).

Position TAKEN:

It is our view that the use of the "room" in the calculation of the limitations under section 63 does not constitute an amount "deducted under section 63" which the claimant would be required under subparagraph 122.2(1)(a)(ii) to reduce the amount of the child tax benefit supplement.

Reasons FOR POSITION TAKEN:

Interpretation of the legislation as it reads.

		June 13, 1994

	Mississauga District Office	Head Office
	Appeals Division      	Rulings Directorate
D. Zion
(613) 957-8953
	Attention: D. Addison

		940878

Child Care Expense Deduction and Child Tax Credit Supplement

This is in reply to your correspondence of April 7, 1994 concerning the above noted subject. In the comments that follow, unless otherwise stated, all statute references are to the Income Tax Act S.C. 1970-71-72, c.63 as amended, consolidated to June 10, 1993.

In your correspondence you have advised us that a reassessment of the 1992 individual tax return of XXXXXXXXXX has resulted in the disallowance of the child tax supplement of
XXXXXXXXXX

The supplement was disallowed despite the fact that no child care expenses were claimed by XXXXXXXXXX In her calculation of the child care expenses deduction for 1992, the limitation which pertained to XXXXXXXXXX pursuant to clause 63(1)(e)(ii)(A) of the Act was utilized in the calculation of the limitation of the total child care expense deduction for 1992. This resulted in a larger limitation pursuant to paragraph 63(1)(e) of the Act than she would have been entitled to, had only the limitation for her other eligible child for whom the child care expenses had been paid, been used.

As we understand it, you have asked whether when an amount is used in the calculation of the limitation, pursuant to subparagraph 63(1)(e)(ii) of the Act and no child care expenses were incurred with respect to that particular child, the amount so used should be considered to have been paid in respect of child care expenses (child care expenses claimed) for that child, thus affecting the calculation of the child tax credit supplement pursuant to subparagraph 122.2(1)(a)(ii) of the Act.

Our Comments

Subsection 63(1) of the Act provides that, subject to subsection (2), amounts expended as or on account of child care expenses in respect of an eligible child will be deductible subject to certain limitations. In 1988 section 63 of the Act was amended to, amongst other changes, permit a claimant to aggregate child care expenses for eligible children and compare that total to the total of eligible children times the dollar limits, and deduct the lesser amount. This was effectively accomplished by eliminating the words "in respect of whom the child care expenses were incurred" from subparagraph 63(1)(e)(ii) of the Act, the provision limiting the per child amount. This permitted the "room" created by an eligible child for whom child care expenses are less than the limit to be used for expenses for another eligible child in determining the limitation.

Subparagraph 122.2(1)(a)(ii) of the Act provides that the child tax supplement is to be reduced by 25% of the child care expense deduction claimed for the year in respect of the child. It reads "the aggregate of all amounts each of which is, in respect of an eligible child of the individual for the year who is under 7 years of age at the end of the year, the amount, if any, by which $200 ($213 for 1992) exceeds 25% of such portion of all amounts deducted under section 63 for the year as may reasonably be considered to have been paid in respect of the child" (emphasis added). It is our view that the calculation of the "room" as described above is a notional calculation for the purposes of determining one of the limitations in determining the amount that may be deducted for child care expenses. However, if no actual child care expenses have been paid for a particular child, then it could not be said that an amount was deducted under section 63 that could "reasonably be considered to have been paid in respect of (that) child". Accordingly, the claimant would not be required under subparagraph 122.2(1)(a)(ii) of the Act to reduce the amount of the child tax benefit supplement in respect of a an eligible child for which no child care expenses were actually paid.

We trust that our comments will be of assistance.

P.D. Fuoco
Section Chief
Personal and General Section
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

c.c.Assessment of Returns Directorate

Client Assistance Directorate