15 December 1998 Internal T.I. 9828107 - 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 Department.

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

Principal Issues:

In the early part of 1997, Individual A hired Individual B (a live-in nanny) to care for his child. In November of 1997, Individual A married Individual B and in May, 1998 Individual B gave birth to their child. In this situation, Individual B is considered to be a “supporting person” as defined in subsection 63(3) of the Income Tax Act (the “Act”) for the purposes of subparagraph (b)(ii) of the definition of “child care expense” in subsection 63(3) of the Act. The result is that amounts paid by Individual A to Individual B are not deductible under section 63 as they do not qualify as child care expenses. Would a ruling issued in respect of the Employment Insurance Act under which Individual B’s employment with Individual A qualified as being eligible for the purposes of that act, have any bearing on the deductibility of the amounts paid by Individual A to Individual B?

Position: No

Reasons:

Since the non-deductibility of the amounts in question is based on the relationship between Individual A and Individual B, the ruling is irrelevant.

		December 15, 1998

	XXXXXXXXXX  Tax Services Office  	HEADQUARTERS
	XXXXXXXXXX 	M. Eisner
	Client Services Division	(613) 957-2138

		982810
	
Child Care Expenses

This is in reply to your memorandum of October 26, 1998, concerning the above-noted subject. We also acknowledge our telephone conversation (Eisner/XXXXXXXXXX) in which we obtained some clarification with respect to your concern.

In your memorandum, you have referred to a situation where an individual (“Individual A”) hired a live-in nanny (Individual “B”) in the early part of 1997, who lived at Individual A’s residence. Individual B provided care for Individual A’s child or children and Individual A made payments to her in that regard. Individual B was a resident of Canada and worked in Canada as a result of having been issued a working visa from the Government of Canada.

In November of 1997, Individual A married Individual B and in May of 1998, Individual B gave birth to their child. Following the birth of the child, Individual B applied for employment insurance benefits under the Employment Insurance Act. Human Resources Development Canada (“HRDC”) requested a ruling from this Department on whether or not Individual B was eligible for EI benefits. Pursuant to Ruling XXXXXXXXXX (the “Ruling”) dated XXXXXXXXXX, Individual B was considered to be eligible for EI benefits in respect of a period of time up to the date of her marriage to Individual B.

In the above situation, you have indicated that normally Individual B would have been regarded as being the spouse of Individual A with the result that the child care expenses would not have been allowable under section 63 of the Income Tax Act (“the “Act”). However, you have asked us whether the Ruling could result in a deduction in respect of the amounts paid by Individual A to Individual B.

Our Comments

Subject to the issues discussed below, our comments in respect of amounts paid from Individual A to Individual B relate to amounts that are otherwise deductible and that Individual A’s income is higher than Individual B’s income for 1997 on the assumption that both incomes are computed without reference to section 63 of the Act and paragraphs 60(v.1) and 60(w) of the Act.

With respect to the above situation, the definition of “child care expenses” in subsection 63(3) of the Act provides that, where the child care services are provided by an individual, the individual must be a person other than “a supporting person” of the child. The term “supporting person” of an eligible child of a taxpayer for a taxation year is defined in subsection 63(3) of the Act to mean the taxpayer’s spouse as long as the spouse resides with the taxpayer at any time during the year and at any time within 60 days after the end of the year (We have presumed that this was the case with respect to the situation under consideration). In relation to these comments, it is our view that Individual B is a “supporting person”. Accordingly, the amounts paid by Individual A to Individual B do not qualify for deduction under subsection 63(1) of the Act.

While we have not been provided with a copy of the Ruling, it is our understanding that it relates to Individual B’s eligibility for EI benefits in respect of her employment with Individual A. However, it is our view that the Ruling is not a relevant consideration in determining whether the amounts in question are deductible under section 63 of the Act.

If you require further technical assistance, we would be pleased to provide our views.

For your information, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the legislation Access Database (LAD) on the Department’s mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severe using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to

Jackie Page at (613) 957-0682. The severed copy will be sent to you for delivery to the client.

Jim Wilson
Section Chief
Business, Property & Employment Section II
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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