Section 63

Taxpayers who earn employment income rather than business income hire home babysitters as employees and receive hiring credit for small business (HCSB) by way of credit to their source deduction accounts. CRA stated:

[T]he employer's EI premiums are "child care expenses" within the meaning of subsection 63(3) that can be taken into account. in computing the deduction under subsection 63(1). Under paragraph 63(1)(d), the portion of the employer's contribution for which the employer is entitled to the HCSB is an amount in respect of which an individual is entitled to a refund that cannot be taken into account in the calculation of deductible child care expenses.

The proposed Temporary Parental Educational Support payments would be provided by the B.C. government to parents of children in kindergarten through grade seven in the public school system in the event that a labour dispute with teachers was not resolved. The payment would be $40 per day per eligible child to help offset the cost of tutoring, child care or supervision. CRA stated:

If the Payments provided are a reimbursement of, or specific assistance for child care expenses, it is likely that paragraph 63(1)(d) would apply and the Payments would reduce the child care expense deduction otherwise available. If the Payments are made based on a child's grade level, with no requirement for a child care expense to be incurred by the recipients, the Payments will likely not be "a reimbursement or any other form of assistance" in respect of child care expenses, and the available child care expense deduction would not be reduced.

In the course of a general description of the child fitness tax credit (CFTC) and the children's arts tax credit (CATC), CRA stated:

Where an organization concludes that the program it offers qualifies for either the CFTC or the CATC while being a child care expense within the meaning of subsection 63(3), it should issue a single receipt containing the all the information relevant to the various tax measures. Depending on the taxpayer’s situation, the taxpayer will use the receipt either for child care expenses, or for the CFTC or the CATC.

A taxpayer, whose child was selected to join an elite hockey team that is linked to a distant school agreed with a host family in that area to provide lodging to the child during the school year. Are these accommodation expenses eligible as child care expenses? CRA responded:

[A]mounts paid to a boarding school or camp include amounts paid to a sports school where lodging is involved.

However … lodging expenses with a host family are not amounts paid to a sports school providing lodging services, and, consequently, they are not child care expenses for the purposes of subsection 63(3).

CRA commented on whether the following categories of expenses incurred by parents at a childcare centre qualified as child care expense:

Parents were required to pay a penalty to a daycare centre pursuant to a liquidated damages clause in their contract with the centre, on their early termination of the arrangement. In finding that the penalty could qualify as a “child care expense,” the Directorate stated:

[T]he expression “expense incurred … for the purpose of providing … for an eligible child … child care services …” is sufficiently flexible to include contract termination fees where such fees were provided for in the initial agreement between an individual and a daycare centre that set out the commitments and obligations of each party.

Although RC has no guidelines as to the percentage of total fees charged by private schools that represents child care expenses, amounts paid for after-school and before-school care will ordinarily qualify, as well as the actual per student cost of lunch time supervision.

Discussion of day-care and monitoring services provided by a college.

Are Quebec Parental Insurance Plan (QPIP) benefits received under the Act respecting Parental Insurance (Quebec) included in "earned income"? CRA responded:

QPIP tax benefits are not covered by any of the paragraphs in the definition of earned income in subsection 63(3). Rather … this type of benefit is included in computing a taxpayer's income under paragraph 56(1)(a). Indeed … subparagraph 56(1)(a)(vii) … provides that a benefit paid under [such] Act … will be included in computing a taxpayer's income … .

A parent (Parent1) who lived in Canada with an "eligible child" incurred related child care expenses in order to work as an employee. The other parent of the child (Parent2) is not resident in Canada. The parents are married and not living apart because of a marriage breakdown. Is Parent2 considered a "supporting person." CRA responded that its:

practice is to consider that if a person has lived with the taxpayer, the person is considered to have resided with the taxpayer for purposes of the child care expenses deduction. …

Parent1 does not have to consider Parent2 when completing Form T778 as Parent2 is not a "supporting person" for purposes of the child care expenses deduction. Indeed, Parent1 and Parent2 have not lived together during the year.

In connection with finding that child care expenses incurred in the year, in the context of the correspondent living separate and apart from the correspondent’s spouse but their living under the same roof with their children, will be deductible by the parent who paid the child care expenses, provided that all the conditions for claiming the deduction are satisfied, CRA stated:

[T]here does not appear to be a "supporting person" … in the situation you have presented to us, since even if you lived in the same household as your spouse, you likely did not "reside with" her at any time during the first 60 days of 2010 … .

In this case, child care expenses may be deducted under subsection 63(1) by the paying parent for child care expenses incurred by him or her in the year of separation, provided all other conditions for claiming the deduction are satisfied.