29 September 2011 External T.I. 2011-0402001E5 - 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.

Principal Issues: Are payments that have been made to hold a day care position during a maternity leave of absence from employment deductible under subsection 63(1) of the Income Tax Act ( the "Act")?

Position: Assuming all other conditions to qualify as a child care expense are met, with respect to child care payments being made during a taxpayer's temporary leave of absence from employment, it is our view that fees paid to maintain a place in a day nursery or to ensure babysitting services would qualify as a child care expense where the taxpayer remained employed during the temporary leave of absence and the payments were made with the eventual aim of enabling the taxpayer to return to work with the same employer.

Reasons: The purpose test in section 63 of the ITA would not require that the child care expense be incurred at the same time as the resumption of the activity carried on before the temporary leave of absence.

XXXXXXXXXX 								2011-040200
								 	N. Shea-Farrow
September 29, 2011

Dear XXXXXXXXXX :

Re: Technical Interpretation Request - Child Care Expense Deduction

We are writing in response to your e-mail of April 6, 2011 concerning the deductibility of child care expenses under subsection 63(1) of the Income Tax Act (the "Act") where payments have been made to hold a day care position during a maternity leave of absence from employment.

The following is our understanding of your situation that you described for the 2010 taxation year:

1. You have been on maternity leave since XXXXXXXXXX , 2010.

2. Your older daughter attends a day care on a part-time basis since you started your maternity leave. This is the same day care that she attended before your maternity leave. She attends on a part-time basis in order to keep the day care spot for her when you return to work.

3. You will return to work with the same employer in XXXXXXXXXX 2011.

4. You are not being topped up with additional income from your employer while on maternity leave.

Our Comments

Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to provide the following general comments.

Section 63 of the Act provides a deduction for amounts paid for child care expenses incurred in respect of an "eligible child" of the taxpayer. To qualify, the child care expenses must be incurred in order to enable the taxpayer, or a "supporting person" of the child, to perform duties of an office or employment, to carry on business or, in certain instances, to carry on research, or attend a designated educational institution or a secondary school. There are a number of other requirements that have to be met in order for a taxpayer to be entitled to deduct child care expenses. For more information on the rules for child care expenses, including the limits on the amount of the deduction, please refer to Interpretation Bulletin IT-495R3, Child Care Expenses, and Form T778, Child Care Expenses Deduction.

Assuming all other conditions to qualify as a child care expense are met, with respect to child care payments being made during a taxpayer's temporary leave of absence from employment, it is our view that fees paid to maintain a place in a day nursery or to ensure babysitting services would qualify as a child care expense where the taxpayer remained employed during the temporary leave of absence and the payments were made with the eventual aim of enabling the taxpayer to return to work with the same employer. The fact that a taxpayer does not receive any additional income from their employer while on a temporary leave should not in itself disqualify the payments as child care expenses.

We trust these comments will be of assistance.

Yours truly,

Sharmini Ratnasingham
Assistant Director
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch