2 February 1999 External T.I. 9900885 - 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:

Taxpayer’s mother, who was visiting from XXXXXXXXXX stayed in Canada with her from XXXXXXXXXX . Taxpayer’s mother has not lived in Canada before this time. From XXXXXXXXXX , the mother looked after the taxpayer’s son and was paid a total of $XXXXXXXXXX for child care services for 1998. The taxpayer’s mother returned to XXXXXXXXXX at the end of XXXXXXXXXX .

1. Is the taxpayer’s mother a resident or deemed resident of Canada?

2. Is the taxpayer’s mother an employee of the taxpayer or self employed?

Position:

1. Question of fact. 2. Question of fact.

Reasons:

1. It is a question of fact whether the taxpayer’s mother was a resident of Canada for 1998. The determination of residence of an individual can only be made by examining all the facts and circumstances with respect to that individual. If based on the facts and circumstances, a taxpayer is not considered to be a factual resident of Canada, paragraph 250(1)(a) of the Act deems a person to be a resident of Canada throughout a taxation year if the person sojourned (i.e. is temporarily present) in Canada in the year for a total of 183 days or more. As the taxpayer’s mother lived in Canada in 1998 for more than 183 days, (if she is not a factual resident throughout this period), she would be considered to be a deemed resident of Canada for 1998. As a deemed resident of Canada, an individual will be subject to tax on his or her world income under subsection 2(1) of the Act and is required to file a T1 income tax return to report such income. The individual may be eligible to claim a foreign tax credit for any income tax paid to a foreign country on any of such income that is sourced outside Canada. If the taxpayer’s mother is considered to be a deemed resident of Canada for 1998, all the other conditions of section 63 relating to the child care expenses deduction would still have to be met in order for her to claim the child care expenses incurred.

2. If the service provider is not self-employed but an employer-employee relationship is involved, income tax, Canada Pension Plan contributions and Employment Insurance premiums must be withheld by the employer and remitted to the Receiver General. The amount of control the contracting parent has over the service provider’s work is a factor in determining whether that person is an employee or is self-employed. Generally, an employer-employee relationship will be considered to exist where the service provider works at the parent’s home and the parent specifies the work to be done; the parent has set out definite working hours and supervises how the work is to be carried out; the parent pays the commuting costs the service provider incurs in the course of providing the services; and the service provider must devote all of her time to the parent’s child. Generally, a service provider will be considered to be self-employed if the service provider controls the number of hours worked, the premises and materials used, and the way in which the day care duties are carried out. However, in any particular case, there may be other factors that need to be considered in determining the status of the person providing child care services.

XXXXXXXXXX 			990088
G. Moore
February 2, 1999

Dear XXXXXXXXXX:

Re: Child Care Expenses

This is in reply to your letter of January 12, 1999, regarding child care expenses.

In your letter, you indicate that your mother came to Canada on a visitor visa in 1997. In 1998, during the months of XXXXXXXXXX, she looked after your XXXXXXXXXX son while you were working full-time. You paid her for child care services she provided. You indicate that she does not have a social insurance number. You are asking if you can claim the payment to her as child care expenses on your 1998 income tax return.

Further to the telephone conversation (Moore/XXXXXXXXXX) of January 20, 1999, you indicated that your mother, who was visiting from XXXXXXXXXX, stayed in Canada with you from XXXXXXXXXX. Your mother did not reside in Canada before this time. From XXXXXXXXXX she looked after your son on a full-time basis and you paid her $XXXXXXXXXX per month. For XXXXXXXXXX, you paid her $XXXXXXXXXX for child care services as she looked after your son for half days. For the month of XXXXXXXXXX, you paid her $XXXXXXXXXX as she looked after your son on a part-time basis. From XXXXXXXXXX, you paid her $XXXXXXXXXX for child care services as she looked after your son on a part-time basis. The total amount you paid her for child care services for 1998 is $XXXXXXXXXX.

Our Comments

The definition of “child care expense” in subsection 63(3) of the Income Tax Act (“the Act”) requires that in order for an expense to qualify as a child care expense, the expense has to be incurred in a taxation year for the purpose of providing in Canada for an eligible child of a taxpayer, child care services. The child care services have to be provided to enable the taxpayer, or a supporting person of the child in the year, who resided with the child at the time the expense was incurred, to perform the duties of an office or employment, to carry on a business either alone or as a partner actively engaged in the business, to carry on research or any similar work for which the taxpayer or supporting person received a grant, or to attend a designated educational institution or secondary school in a program of not less than 3 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. In addition, in order to qualify as a “child care expense”, the child care services have to be provided by a resident of Canada other than the mother or father of the child, or a supporting person of the child or a person who is under 18 years of age and is related to the taxpayer, or in respect of a person who is claimed as a dependant under section 118 of the Act by the taxpayer or the supporting person. Interpretation Bulletin IT-495R, Child Care Expenses, (copy enclosed) contains more information about the child care expenses deduction.

It is a question of fact whether your mother was a resident of Canada for 1998. The determination of residence of an individual can only be made by examining all the facts and circumstances with respect to that individual. Interpretation Bulletin IT-221R2, Determination of an Individual’s Residence Status, and its Special Release (copies enclosed) contains the Department’s general view on residence determination and provides some general guidelines to taxpayers regarding such determination. If based on the facts and circumstances, a taxpayer is not considered to be a factual resident of Canada, paragraph 250(1)(a) of the Act deems a person to be a resident of Canada throughout a taxation year if the person sojourned (i.e. is temporarily present) in Canada in the year for a total of 183 days or more. As your mother lived in Canada in 1997 and 1998 for more than 183 days, where she is not otherwise factually resident in Canada throughout this period, she would be considered to be a deemed resident of Canada throughout both these years. Accordingly, payments made to your mother during the period she was a resident of Canada may be eligible as child care expenses, subject to the other criteria described herein.

You have indicated in your letter that you have an itemized month-by-month receipt that your mother provided for the payment you made to her for child care services. Since your mother does not have a social insurance number, you have indicated that you can only provide her name on your income tax return. Subsection 63(1) of the Act provides that the payment of child care expenses is to be proven by filing with the Department receipts issued by the service provider and that these receipts must contain the service provider’s social insurance number, if the service provider is an individual. If the service provider does not have a social insurance number, then the name and address of the service provider should be provided on the receipt. Paragraph 18 of IT-495R2 discusses the form that should be completed and attached to your return to make a child care expense claim.

It is also necessary to determine whether the person providing the child care services is an employee or self-employed. If the service provider is not self-employed but an employer-employee relationship is involved, income tax, Canada Pension Plan contributions and Employment Insurance premiums may have to be withheld by the employer and remitted to the Receiver General. The amount of control the contracting parent has over the service provider’s work is a factor in determining whether that person is an employee or is self-employed. Generally, an employer-employee relationship will be considered to exist where the service provider works at the parent’s home and the parent specifies the work to be done; the parent has set out definite working hours and supervises how the work is to be carried out; the parent pays the commuting costs the service provider incurs in the course of providing the services; and the service provider must devote all of her time to the parent’s child. Generally, a service provider will be considered to be self-employed if the service provider controls the number of hours worked, the premises and materials used, and the way in which the day care duties are carried out. However, in any particular case, there may be other factors that need to be considered in determining the status of the person providing child care services. If you are unsure how the relationship in this particular case will be regarded by the Department and more particularly, your withholding obligations thereto, if any, you can request, in writing, a determination through the Source Deductions Section of your local taxation service office. All the facts and relevant documentation should accompany your request.

Your Mother’s Canadian Tax Liability

As a resident of Canada (whether as a factual or a deemed resident), an individual will be subject to tax on his or her world income under subsection 2(1) of the Act and is required to file a T1 income tax return for each taxation year that Canadian tax is payable. The individual may be eligible to claim a foreign tax credit for any income tax paid to a foreign country on any of such income that is sourced outside Canada. Currently, there is no tax convention between Canada and XXXXXXXXXX. If you require assistance in determining your mother’s residency status for 1997 and 1998, you may contact your local taxation service office.

We trust our comments will be of assistance to you.

Yours truly,

J. Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

Encl.

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