20 November 2000 External T.I. 2000-0048145 - 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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether child care expenses can be claimed by a custodial parent where she was reimbursed partially by the husband pursuant to a court order.

Position TAKEN:

Yes.

Reasons FOR POSITION TAKEN:

In the case where two parents are divorced and only one parent is the custodial parent, child care expenses for the year will be allowed only to the individual who resided with the child at the time the child care expense was incurred. If the non-custodial parent pays the child care expenses, the non-custodial parent is not entitled to deduct the child care expenses. If a written agreement or court order requires that one spouse pay an amount to the other spouse with respect to a share of the annual child care expenses, this amount may, subject to certain criteria, form part of the "child support amount" for purposes of paragraphs 56(1)(b) and 60(b) of the Income Tax Act. The recipient (i.e. custodial parent), however, would generally still be responsible for making the full payments to the child care giver and would be entitled to a full deduction assuming they meet the other conditions for child care deductions. The Canada Customs and Revenue Agency would need to see all relevant documentation before a final determination could be made.

XXXXXXXXXX 2000-004814
J. Wilson
November 20, 2000

Dear XXXXXXXXXX:

Re: Child Care Expenses

This is in reply to your letter of September 15, 2000, wherein you requested our views regarding child care expenses. You describe a situation where the husband and wife were recently divorced and the wife gets sole custody of their only child. In addition to the child support that the husband must pay to his wife pursuant to the divorce order, he pays 50% of the child care costs for the child directly to his wife by way of a cheque. However, at the end of the year the wife claims the entire child care costs instead of the 50% that she actually pays out of her pocket. You want to know if the wife is entitled to claim 100% of the child care costs or 50% of the child care costs.

Our Comments

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 ruling request submitted in the manner set out in Information Circular 70-6R3, dated December 30, 1996. Enquiries regarding completed transactions such as this should be addressed to your local tax services office. Also, the fact scenario in this case is not clear since you have not provided us with any documentation and you seem to have used the terms "child care" and "child support" interchangeably. However, we have provided the following comments which are of a general nature only.

In the case where two parents are divorced and only one parent is the custodial parent, child care expenses for the year will be allowed only to the individual who resided with the child at the time the child care expense was incurred and only to the extent that they were paid by that individual to enable the individual to engage in the activities listed in paragraph 1 of IT-495R2, Child Care Expenses, (copy enclosed). In the situation you described in your letter, it appears that only the individual's ex-spouse would be entitled to claim child care expenses since she would be the parent residing with the children at the time the child care expenses were incurred and assuming that she paid for the child care expenses to enable her to engage in the activities listed in paragraph 1 of IT-495R2.

If the non-custodial parent pays the child care expenses, the non-custodial parent is not entitled to deduct the child care expenses. As a general rule, when there is no longer a "supporting person" (as described in paragraph 8 of IT-495R2), the individual claiming the child care expense deduction must have paid the child care expenses and must have resided with the child at the time the child care expenses were incurred. Different rules apply if the couple separates during a year and resume living together within the first 60 days of the following year.

The receipt for child care expenses should be made to the individual who paid the child care expenses. If the non-custodial parent paid the child care expenses, the receipt should be made to him or her and would not be deductible to the non-custodial parent. In addition, the custodial parent would not be entitled to deduct child care expenses paid by the non-custodial parent. It is a question of fact as to who paid the child care expenses. If a written agreement or court order requires one spouse to pay an amount to the other spouse with respect to a percentage of the annual child care expenses, this amount may, subject to certain criteria, form part of the "child support amount" for purposes of paragraphs 56(1)(b) and 60(b) of the Income Tax Act. The recipient (i.e. custodial parent), however, would generally still be responsible for making the full payments to the person who provided the child care services and would be entitled to a full deduction assuming they meet the other conditions for child care deductions. The Canada Customs and Revenue Agency would need to see all relevant documentation before a final determination could be made.

In the case of shared custody, since each parent resides with the child, and assuming that neither are residing with a "supporting person" during the year, each parent could claim child care expenses incurred in a taxation year for an eligible child if the expenses were incurred by the parent at the time the parent resided with the child and only to the extent that they were paid by that parent to enable the parent to engage in the activities listed in paragraph 1 of IT-495R2.

We trust our comments will be of assistance to you.

Yours truly,

Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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