14 February 2007 External T.I. 2007-0222641E5 - Child care expense deduction status Indian

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: Which parent is entitled to the CCED if one parent is a status Indian earning exempt income that exceeds the taxable income of his or her spouse/common-law-partner?

Position: The status Indian will be considered to have income of $0 and will therefore be the party entitled to the CCED.

Reasons: The CCED is generally available to the parent earning the lower income, as determined under the Act but ignoring certain specified deductions. Because a status Indian's exempt income is not income for purposes of the Act, that individual will be considered to have income of $0 and will therefore have the lower income.

								2007-022264
XXXXXXXXXX 							Renée Shields
(613) 948-5273
February 14, 2007

Dear XXXXXXXXXX:

Re: Child Care Expense Deduction

This is in response to your electronic correspondence of January 26, 2007 inquiring about the operation of the Child Care Expense Deduction (the "CCED") in a situation in which one parent is a status Indian earning tax-exempt income.

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 submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Rulings." Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office, a list of which is available on the "Contact Us" page of the CRA website at http://www.cra-arc.gc.ca. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.

The CCED provides a deduction in computing a taxpayer's income for a taxation year in respect of childcare expenses incurred to work, carry on a business or undertake certain educational activities. As a general rule, the CCED is available to the spouse or common law partner with the lower income. For this comparative income determination, income of the parties is calculated in accordance with the general provisions of the Income Tax Act (the "Act"), ignoring certain specified deductions. A status Indian's exempt income does not enter into the calculation of income under the Act, which means that an individual earning only exempt income will be considered to have income of $0. As a result, even though the status Indian individual may actually earn more than his or her spouse, it is this individual who will be entitled to the CCED.

The CCED is limited to a maximum amount determined by a formula making reference to "earned income", which term is defined for purposes of this calculation in subsection 63(3) of the Act. By virtue of that definition, earned income includes office, employment and business income, even if that income is exempt income earned by a status Indian.

I trust this information is of assistance.

Yours truly,

Mickey Sarazin, CA
Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch