11 October 2011 Ministerial Correspondence 2011-0418771M4 - Children's Arts Tax Credit

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.Do piano and vocal lessons qualify for the CATC?

Position: 1. Yes.

Reasons: 1.The legislation

XXXXXXXXXX

Dear XXXXXXXXXX :

The office of the Honourable James M. Flaherty, Minister of Finance, forwarded to me a copy of your correspondence, which I received on August 23, 2011, asking if costs incurred for piano and vocal lessons qualify for the new children's arts tax credit (CATC).

Mr. Flaherty introduced the legislation regarding the new CATC in the House of Commons on June 6, 2011. The legislation has not yet been made law. In the absence of enacted legislation, I can offer the following general comments regarding the CATC.

Effective for the 2011 tax year, the proposed CATC will provide individuals with a non-refundable income tax credit of up to $500 for eligible expenses paid in a tax year for any child who is under 16, or under 18 if the child is eligible for the disability tax credit, at the beginning of the year. If there is more than one person entitled to claim a deduction for a particular child, the total CATC claimed for that child must not exceed the maximum amount of $500 allowed per child.

The proposed legislation states that expenditures made for a child will qualify as eligible expenses if they are paid to a qualifying entity as fees attributable to the cost of registration or membership in a prescribed program of artistic, cultural, recreational, or developmental activities. Such activities fall under these categories:

• literary arts
• visual arts
• performing arts
• music
• media
• language
• customs
• heritage
• wilderness
• natural environment

Developmental activities include those activities that help children develop and use particular skills and those activities with structured interaction among children where supervisors teach, tutor, or help children develop interpersonal skills and enrichment in academic subjects.

Only fees charged by the qualifying entity for costs incurred to operate and administer a program, offer instruction, rent facilities, and purchase uniforms and equipment qualify for the CATC. If the costs of uniforms and equipment are included in the fees, the costs are eligible only to the extent that the cost of the uniform or equipment has little or no residual value at the end of the program. Fees paid in respect of costs that relate to travel, meals, and accommodation are not eligible for the CATC. The qualifying entity offering the program is responsible for calculating specific program expenses and issuing receipts.

To be eligible, an activity must:

• be supervised;
• be suitable for children; and
• contribute to the development of creative skills or expertise in an artistic or cultural activity.

Generally, an eligible program must include a significant amount of eligible activities and be ongoing. A weekly program must last for at least eight consecutive weeks or, in the case of children's camps, for at least five consecutive days. A program will qualify for the CATC if more than 50% of the activities are eligible. If a child can select from among various activities, the full cost of the activities offered are eligible if either 50% of the activities offered are eligible or if more than 50% of the available program time is devoted to eligible activities. Programs that are part of a school curriculum are ineligible for the CATC.

When an expense such as a child care expense has already been deducted, it is not eligible for the CATC. Similarly, any expense that qualifies for another tax credit such as the children's fitness tax credit is not eligible for the CATC. Also, taxpayers cannot claim expenses paid to an individual who is under 18 or to a person who is the spouse or common-law partner of the individual claiming the CATC.

Based on the proposed legislation, it is the CRA's view that artistic activities include piano and vocal lessons. Providing all other requirements are met, fees paid for piano and vocal lessons qualify for the CATC.

You ask if the costs incurred for testing by the Royal Conservatory of Music (RCM) and for buying books qualify for the CATC. If costs are paid to a qualifying entity as part of the program expenses, they qualify for the CATC. However, if the costs are paid to another person or organization but are not part of the program offered by the qualifying entity, they do not qualify for the CATC.

I trust that the information I have provided is helpful.

Yours sincerely,

Gail Shea, P.C., M.P.
Minister of National Revenue

Robert Dubis
(905) 721-5191
2011-041877