17 May 2010 External T.I. 2010-0366941E5 - 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: XXXXXXXXXX would like confirmation that the extended day fees that will be charged under the new early learning program will qualify as child care expenses.

Position: Yes, provided all of the other requirements in section 63 are met.

Reasons: The intent of the early day component of the new early learning program is to provide child care before and after regular school hours. It will be led by an ECE, not teachers as would be required under the Education Act in Ontario for a proper structured learning environment, and enrollment will be at the option of the parents

XXXXXXXXXX  							2010-036694
									A. Townsend
May 17, 2010

Dear XXXXXXXXXX :

Re: Early Learning Program's ("ELP") Extended Day Fees - Child Care Expenses

I am writing in response to your letter of May 4, 2010 requesting confirmation that the extended day fees charged under Ontario's new ELP, will qualify as child care expenses under section 63 of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").

On October 27, 2009, the Ontario Government announced a new junior and senior kindergarten program called the ELP, or full-day learning program for Ontario children ages four and five. The ELP consist of two components: a full day school day program for junior and senior kindergarten that will be offered each school day during regular school hours; and an extended day component ("EDC") to provide child care before and after regular school hours that will be funded on a cost recovery basis.

The intent of the EDC is to replace the current "wrap-around" child care that requires children to be moved between programs and locations as it will provide child care at the schools. The EDC is intended to be complementary to the kindergarten programs. It will be led by Early Childhood Educators ("ECE") and where demand requires, (i.e. more than thirteen 13 children), a second adult. Parents will have the option of choosing to enrol their children in the EDC before or after regular school hours, or both. Where there is sufficient parent demand and capacity, the EDC may be extended to care for older children within the school and to include child care on professional development days and summer holidays.

The EDC will not be subject to the Day Nurseries Act or its licensing requirements. The Ontario Ministry of Education is currently developing a program guide outlining how the EDC will complement the core program.

In your letter you have concluded that the extended day fees will qualify as child care expenses under the Act. The fees are paid for the kindergarten age children that are under the age of six. In addition, the EDC is intended to provide child care and it will not be instructional pursuant to the Education Act.

Section 63 of the Act provides the legislation for the deduction of child care expenses incurred in the year by a parent or guardian of an eligible child. The legislative is intended to provide some relief for taxpayers who incur child care expenses in order to work, carry on a business or undertake certain educational activities. The maximum yearly deduction is the lesser of 2/3 of the taxpayer's earned income for the year and the "annual child care expense amount", which is defined in subsection 63(3) of the Act. It is defined as $7,000 for a child under age seven, $4,000 for a child age seven to sixteen and $10,000 for a child that is eligible for the disability tax credit.

For the purpose of section 63 of the Act, the term "child care expenses" is also defined in subsection 63(3) of the Act. Paragraph (d) of the definition specifically excludes expenses for education as a child care expense. Therefore, in order to determine if the fees qualify as child care expenses, they cannot be considered expenses for education. CRA is of the opinion that a program of education is goal-oriented and the child is expected to learn skills through a planned program of instruction, whereas a child in a child care setting is not expected to achieve any specific educational goals. Some other factors that have been considered, is the age of the children, the qualifications of the instructors and the extent that progress is measured.

Paragraph three of Interpretation Bulletin, IT-495R3 indicates that when the payment is made for child care services for a child under the compulsory school age, the services being provided are generally considered child care rather than education, unless the facts indicate otherwise.

In your letter you concluded that the term "compulsory school age" as used in paragraph three of IT-495R3, means the legal compulsory school age of children in Ontario, or the age of six. As it is not compulsory for children aged four and five to attend junior or senior kindergarten, you have concluded that this is support that the EDC fees will qualify as child care expenses regardless of whether there is a structured learning environment. To clarify this point, paragraph three of IT-495R3 does indicate that this is a general guideline. We have, for example, previously issued interpretations advising taxpayers that if an education institution charges a fee for kindergarten, the fee would be considered education and would not qualify as a child care expense; regardless of the fact that the children are below the compulsory school age of six.

Our understanding is, however, that the intent of the EDC is to provide child care before and after the regular school hours that will complement the new ELP. In addition, the EDC will avoid the movement of young children between programs and locations. It will be led by an ECE, not teachers as would be required under the Education Act in Ontario for a proper structured learning environment, and enrollment will be at the option of the parents. On this basis, we agree with your opinion that the fees paid could qualify as child care expenses. As noted in your letter, an individual parent's claim would depend on whether all other requirements in section 63 of the Act are met.

I trust these comments will be of assistance. Should you have any further questions, please feel free to call Ann Townsend at (905) 721-5218.

Sincerely,

Wayne Adams
Director General
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch