14 July 2011 External T.I. 2011-0400631E5 - 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: Can parents pay grandparents to provide child care services for their children and claim a deduction under section 63 of the Income Tax Act ( the 'Act")?

Position: Providing all of the conditions are met under section 63 of the Act a parent can pay grandparents of their children to provide child care services to enable the parents to go to work and have the expenses qualify as child care expenses.

Reasons: It is possible under the legislation to have grandparents of eligible children provide the child care services and have the amounts qualify as a child care expense under subsection 63(3) of the Act.

XXXXXXXXXX
									2011-040063												N. Shea-Farrow	

July 14, 2011

Dear XXXXXXXXXX :

Re: Technical Interpretation Request - Child Care Expense

We are writing in response to your e-mail of March 16, 2011 requesting clarification on parents' entitlement to deduct child care expenses pursuant to subsection 63(1) of the Income Tax Act (the "Act"). The scenario you described is the following:

1. You pay your children's grandparents to provide child care services to your two children on week days when you and your wife go to work.
2. Your parents, the children's grandparents live with you in your home.
3. In your opinion you think that you should be able to claim these amounts that you paid to your children's grandparents, providing that you do not claim the caregiver amount for your parents.

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 request as set out in Information Circular IC 70-6R5 dated May 17, 2002. Where the particular transactions are completed the inquiry should be addressed to the relevant tax services office. However, we are prepared to offer the following general comments, which may be of assistance.

Our Comments

The Canada Revenue Agency's (CRA) general position on the deductibility of child care expenses under section 63 of the Act is set out in Interpretation Bulletin IT- 495R3, "Child Care Expenses". This bulletin and other publications referred to in this letter are available on our website as www.cra-arc.gc.ca.

The term child care expense is defined in subsection 63(3) of the Act. Child care expense means an expense incurred for services rendered in a taxation year for the purpose of providing child care services for any eligible child of a taxpayer if the services were provided to enable the taxpayer or a supporting person of the child for the year:

• to perform the duties of an office or employment;
• to carry on a business either alone or as a partner actively engaged in the business;
• to carry on research or any similar work for which the taxpayer or supporting person received a grant; or
• to attend a secondary school or designated educational institution where the taxpayer is enrolled in a full-time or part-time educational program.

For the purposes of the child care expense deduction, a supporting person of an eligible child of a taxpayer for a taxation year means another person who resided with the taxpayer at any time during the year and at any time within 60 days after the end of the year and who is:

• the child's parent,
• the taxpayer's spouse or common-law partner, or
• an individual who has claimed a tax credit under section 118 for the child for the year.

The taxpayer or supporting person must have resided with the child at the time the expense was incurred in order for the expense to qualify as a child care expense.

An eligible child, includes a child of the taxpayer or of the taxpayer's spouse or common-in-law partner and at some time in the year, is under 16 years of age or is dependent on the taxpayer or taxpayer's spouse or common-in-law partner and has a mental or physical infirmity.

One of the requirements to qualify as a child care expense is that the child care services have to be provided by a resident of Canada other than:

• the child's father or mother,
• a supporting person of the child,
• a person who is under 18 years of age and related to the taxpayer, or
• a person in respect of whom the taxpayer or a supporting person has deducted a tax credit under section 118 (which includes the caregiver credit) of the Act.

In your case, your parents, the children's grandparents would be considered eligible child care providers as long as they are not one of the persons described above and each of your children that the expense is claimed for is an eligible child.

You can refer to IT- 495R3 or Form T778 "Child Care Expenses Deduction for 2010" to determine the basic limits for child care expenses and whether you or your wife, although generally speaking it is the spouse with the lower net income, should claim the child care expenses on their T1 "Income Tax and Benefit Return."

We trust that these comments will be of assistance.

Sharmini Ratnasingham
Assistant Director
For Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch