9 February 2011 External T.I. 2010-0390931E5 - Child Care for Employees

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: Is free child care provided to employees of a not-for-profit child care centre considered a taxable benefit?

Position: Yes.

Reasons: Administrative position that where the employee is the primary beneficiary of a benefit provided by the employer free of charge or at a nominal fee, and the employer is in the business of selling the same service to the public at fair market value rates, there is a taxable benefit to the employee pursuant to paragraph 6(1)(a) of the Act.

XXXXXXXXXX
									2010-039093
									T. Posadovsky, CMA

February 9, 2011

Dear XXXXXXXXXX :

Re: Child Care for Employees

We are writing in reply to your letter dated November 26, 2010, concerning free child care provided to employees of a not-for-profit child care centre.

According to your letter, employees are allowed to place their children in the centre's child care programs and activities while they are working. You explained that this arrangement is available to all employees and is standard practice in the not-for-profit child care community. You requested our views concerning whether this employment benefit is a taxable benefit under the provisions of the Income Tax Act (the "Act").

Our Comments

Written confirmation of the tax implications inherent in a particular transaction is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate tax services office for their views. However, we are prepared to offer the following general comments that may be of assistance.

Where a personal expense is paid directly by an employer, the employee will normally be considered to have received a taxable benefit. The value of any benefit received or enjoyed by an employee in respect of his or her employment is generally included in the employee's income by virtue of paragraph 6(1)(a) of the Act. However, as explained in T4130, Employers' Guide: Taxable Benefits and Allowances, no amount will be included in an employee's income from the use of child care facilities managed by the employer and available to all employees for little or no cost. This position does not extend to where the employer makes the facilities available to non-employees at rates in excess of that which is charged to employees. Accordingly, it is our view that where the employee is the primary beneficiary of child care provided by the employer free of charge or at a nominal fee, and the employer is in the business of providing child care to the public, there is a taxable benefit to the employee pursuant to paragraph 6(1)(a) of the Act. The taxable benefit will be the difference between the amounts paid by non-employees for the services provided, less the amount paid, if any, by the employee.

It should be noted that where an employee is required to include an amount in income as or on account of the benefit derived from employer assistance with child care, the amount of the benefit included in income will be considered to be an amount paid on account of child care for the purpose of determining the eligible costs under section 63 of the Act for the purposes of the Child Care Expenses Deduction. However, the amount deductible by the employee or a supporting person will be limited to the amount otherwise determined under that provision.

For more information on these topics, please refer to T4130, Employers' Guide: Taxable Benefits and Allowances, at www.cra-arc.gc.ca/E/pub/tg/t4130/README.html, and Interpretation Bulletin IT-495, Child Care Expenses, at www.cra-arc.gc.ca/E/pub/tp/ it495r3/README.html.

We trust the above comments will be of assistance.

Yours truly,

Guy Goulet CA, M.Fisc.
Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch