29 September 2011 External T.I. 2011-0409661E5 - 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: Can separated spouses who each pay a portion of the day care costs for their child each be issued a separate tax receipt from the daycare centre and claim their respective amounts for a child care expense deduction for tax purposes?

Position: The receipts for the child care expenses should be issued by the daycare to the payer of the fees. If each parent pays the daycare, then each parent should be issued a receipt for the amount paid by that parent. The fact that a receipt has been issued to a parent does not automatically entitle that parent to make a deduction for child care expenses in computing income for tax purposes. A deduction for child care expenses can only be made if all of the conditions of section 63 of the Act are met, including the requirement that the parent making the claim for the child care expenses paid by them resides with the child at the time that the expense was incurred and made to enable that parent to engage in one of the eligible activities listed in section 63 of the Act.

Reasons: The law.

XXXXXXXXXX 									2011-040966
										N. Shea-Farrow
September 29, 2011

Dear XXXXXXXXXX :

Re: Technical Interpretation Request - Child Care Expense

We are writing in response to your e-mail of June 10, 2011 requesting clarification on the several questions with respect to child care expenses pursuant to subsection 63(1) of the Income Tax Act (the "Act").

The scenario you described for the 2011 taxation year is the following:

1. You and your wife are separated (and are soon to be divorced) and have one child, that was born in 2007 that primarily resides with your wife.

2. The court has awarded joint custody of the child to you and your wife.

3. You pay 49.85% and your wife pays 50.15% of the monthly daycare costs. Both you and your wife worked in the tax year.

You would like to know:

1. Can the daycare centre issue separate tax receipts to you and your wife?

2. Can you and your wife claim a deduction for each of your respective amounts for tax purposes?

3. What interpretation bulletin covers child care expenses?

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request as set out in Information Circular IC 70-6R5 dated May 17, 2002. Where the particular transactions are completed the inquiry should be addressed to the relevant tax services office. However, we are prepared to offer the following general comments, which may be of assistance.

Our Comments

The Canada Revenue Agency's (CRA) general position on the deductibility of child care expenses under section 63 of the Act is set out in Interpretation Bulletin IT- 495R3, "Child Care Expenses". This bulletin is available on our website as www.cra-arc.gc.ca.

The term child care expense is defined in subsection 63(3) of the Act. Child care expense means an expense incurred for services rendered in a taxation year for the purpose of providing child care services for any eligible child of a taxpayer if the services were provided to enable the taxpayer or a supporting person of the child for the year:

• 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 secondary school or designated educational institution where the taxpayer is enrolled in a full-time or part-time educational program.

For the purposes of the child care expense deduction, a supporting person of an eligible child of a taxpayer for a taxation year means another person who resided with the taxpayer at any time during the year and at any time within 60 days after the end of the year and who is:

• the child's parent,
• the taxpayer's spouse or common-law partner, or
• an individual who has claimed a tax credit under section 118 for the child for the year.

The taxpayer or supporting person must have "resided with" the child at the time the expense was incurred in order for the expense to qualify as a child care expense. We have assumed, in your case that neither parent has a supporting person that resides with them. Thus in your case, this means that the child must be physically resident with the parent at the time that such parent incurs the child care expense in order for expenses to qualify.

The receipts for the child care expenses should be issued by the daycare to the payer of the fees. If each parent pays the daycare, then each parent should be issued a receipt for the amount paid by that parent.

The fact that a receipt has been issued to a parent does not automatically entitle that parent to make a deduction for child care expenses in computing income for tax purposes. The provisions regarding the child care expense deduction in the Act do not refer to specific types of custody situations. A deduction for child care expenses can only be made if all of the conditions of section 63 are met, including the requirement that the parent making the claim for the child care expenses paid by them resides with the child at the time that the expense was incurred and made to enable that parent to engage in one of the activities listed above. Accordingly, the percentage of child care expenses which each parent may be entitled to claim in various custody situations should generally correspond with the time that the child actually resided with that parent, provided that the parent in fact incurred the expenses during that time, and all of the conditions of 63 are met.

We trust that these comments will be of assistance.

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