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: Are moving expenses included under paragraph (g) of the definition of "eligible adoption expenses" in subsection 118.01(1) of the Act for the adoption expense tax credit?
Position: No.
Reasons: Moving expenses would not be considered a reasonable expense related to the adoption.
XXXXXXXXXX
2010-037785
N. Shea-Farrow
January 6, 2011
Dear XXXXXXXXXX :
Re: Technical Interpretation Request - Adoption Expense Credit
We are writing in response to your letter which was forwarded to us by the XXXXXXXXXX Tax Centre and received by us on August 16, 2010 requesting our comments on whether moving expenses are included under paragraph (g) of the definition of "eligible adoption expense" in subsection 118.01(1) of the Income Tax Act (the "Act") for the adoption expense tax credit.
The facts as we understand them are that you and your husband started the adoption process two years ago and at that time you were living in a two bedroom house. You were in the process of adopting a brother and a sister. It is your understanding that according to the Children's Aid Society (CAS) regulations you were required to provide separate bedrooms for each child. In response to this you bought a three bedroom house in September 2008. According to you the adoption should be finalized in the next couple of months.
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
Section 118.01 of the Act allows a claim for eligible adoption expenses related to the adoption of an eligible child, in the tax year that includes the end of the adoption period. The maximum amount of expenses for 2010 is $10, 975.00. The credit is determined by multiplying the appropriate percentage (which is 15% for 2010) by the lesser of $10,975.00 and the eligible adoption expenses less any reimbursements of any other form of assistance in respect of the expenses.
An eligible adoption expense, in respect of an eligible child of an individual, means an amount paid for expenses incurred during the adoption period in respect of the adoption of that child, including
(a) fees paid to an adoption agency licensed by a provincial government;
(b) court costs and legal and administrative expenses related to an adoption order in respect of that child;
(c) reasonable and necessary travel and living expenses of that child and the adoptive parents;
(d) document translation fees;
(e) mandatory fees paid to a foreign institution;
(f) mandatory expenses paid in respect of the immigration of that child; and
(g) any other reasonable expenses related to the adoption required by a provincial government or an adoption agency licensed by a provincial government.
The adoption period in respect of an eligible child of an individual begins at the earlier of the time that the eligible child's adoption file is opened with a provincial ministry responsible for adoption (or with an adoption agency licensed by a provincial government) and the time, if any, that an application related to the adoption is made to a Canadian court. The adoption period ends at the later of the time an adoption order is issued by, or recognized by, a government in Canada in respect of that child, and the time that the child first begins to reside permanently with the individual.
An eligible child of an individual is a child who has not attained the age of 18 years at the time the adoption order is issued by or recognized by a government of Canada in respect of that child by that individual.
Your concern is whether moving expenses are included under paragraph (g) of the definition "eligible adoption expense" in subsection 118.01(1) of the Act since it is your understanding that the Children's Aid Society regulations required you to provide each of the two children you were adopting a separate bedroom and therefore you moved to a larger house to meet this requirement.
Moving expenses are specifically provided for in section 62 of the Act. Subsection 62(1) of the Act allows an individual to deduct eligible "moving expenses", as defined in subsection 62(3) of the Act, when the individual moves to begin employment or business at a new work location or to begin full-time attendance at a qualified educational institution. To qualify, the individual's move must, among other things, meet the definition of an "eligible relocation" in subsection 248(1) of the Act. The new residence must be at least 40 kilometres (by the shortest usual public route) closer to the new place of work or educational institution.
The Tax Expenditures and Evaluations 2005 report published by the Department of Finance stated under the objective of adoption expense tax credit, "The measure provides tax recognition to parents for costs that are unique to the decision to adopt a child."
The question is are the moving costs to move from a 2 bedroom house to a 3 bedroom house so each child can have their own bedroom in accordance with the objective of the adoption expense tax credit? The costs should be unique to the decision to adopt a child or children. Many parents who have children that were not adopted move to a larger house as their families expand. These same families would not incur the expenses that are related to the adoption of a child. In our opinion, expenses that parents would likely incur regardless of whether their children are adopted or not, should not be seen as unique to the decision to adopt.
Therefore, even though according to your understanding, the CAS regulations require that each of the children to have their own bedrooms, moving costs incurred to move to a new house as a family expands are not unique to the adoption process and are not reasonable in the circumstances and are not included under paragraph (g) of the definition of an "eligible adoption expense" in subsection 118.01(1) of the Act.
While we trust that our comments will be of assistance to you, they are given in accordance with the practice referred to in paragraph 22 of IC70-6R5 and are not binding on the CRA in respect of any particular situation.
Yours truly,
Sharmini Ratnasingham
Manager
For Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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