28 November 2013 External T.I. 2013-0499631E5 - Child Care Allowances

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: Whether child care allowances provided to employees required to travel on employment-related business are taxable?

Position: See response.

Reasons: Previous positions.

XXXXXXXXXX
2013-049963
T. Baltkois

November 28, 2013

Dear XXXXXXXXXX:

Re: Taxability of Child Care Allowances

We are writing in response to your email of July 24, 2013, wherein you requested our comments concerning the tax implications of a child care allowance provided to an employee required to travel on employment-related business.

In the situation described, an employer has requested that a new employee travel to a location in a different city to attend orientation training related to his or her employment position. The training occurs during company time and the employer requires the employee to attend. In accordance with the employer's travel directive, an employee is entitled to receive a per diem allowance for child care expenses while he or she attends the training.

This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced).  It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.  The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.

Our Comments

Paragraph 6(1)(b) of the Income Tax Act (the "Act") includes in income, amounts received by an employee as an allowance for personal or living expenses or as an allowance for any other purpose, unless any of the exceptions listed in subparagraphs 6(1)(b)(i) to (ix) of the Act apply.

Where an employer reimburses the cost of child care expenses incurred by an employee or provides an allowance for this purpose, an employee is generally considered to have received a taxable employment benefit.

However, in situations where additional child care expenses are incurred because an employee is required by his or her employer to travel on employment-related business away from the municipality, or metropolitan area if there is one, where the employee's regular place of employment is located, it is our view that the employer's reimbursement of these additional child care costs will not be considered a taxable employment benefit.

Similarly, a reasonable allowance provided to an employee to cover additional child care costs incurred in these same circumstances will not generally be taxable by virtue of paragraph 6(1)(b)(vii) of the Act. While the determination as to whether a particular allowance is reasonable is a question of fact, an allowance which covers the actual amounts paid to an arm's length person for providing additional child care services would generally be considered reasonable.

We trust these comments will be of assistance to you.

Yours truly,

Nerill Thomas-Wilkinson, CPA, CA
Manager
for Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch