2016-0626251I7 children’s fitness tax credit

Principal Issues: Whether various expenses are eligible fitness expenses for the children’s fitness tax credit in section 122.8 of the Income Tax Act (the “Act”).

Position: General comments provided.

Reasons: It is a question of fact. There is not enough detail to make a determination.

Author: Shea-Farrow, Nancy
Section: 122.8, 118.03

                                                                                                           March 16, 2016

Individual Returns Directorate                                                            HEADQUARTERS
                                                                                                            Business and Employment Division
                                                                                                            Income Tax Rulings Directorate
Attention: Sheila Barnard, Manager                                                    Nancy Shea-Farrow
Legislation Section                                                                              905-721-5099
Program Support and Services Division
                                                                                                            2016-062625

Children’s Fitness Tax Credit

We are writing in response to your correspondence of January 12, 2016, requesting our views on whether certain expenses for a speed skater qualify as eligible fitness expenses for purposes of the children’s fitness tax credit.

Specifically, you are asking whether each of the following fees are considered to be an “eligible fitness expense” as defined in subsection 122.8(1) of the Income Tax Act (the “Act”):

*     registration fee for on-ice training, $XXXXXXXXXX for the season depending on the level of the skater (August to March);

*     registration fee for the season extension of the on-ice training, $XXXXXXXXXX for the period (April to June);

*     fitness activities fees for training that uses 20 different exercise stations and is controlled by specialized coaches in a gymnasium to get the skaters in shape; $XXXXXXXXXX per block of eight weeks. There are three blocks during the season (August to March);

*     registration fees of $XXXXXXXXXX per competition. There are four to five competitions during the season (August to March);

*     special training fees for XXXXXXXXXX coach of $XXXXXXXXXX per day. Fees include two hours of on-ice training, 1½ hours of off-ice fitness activities, a one-hour presentation on sports nutrition, and a one-hour presentation on skate sharpening; and

*     a $XXXXXXXXXX fee for a yoga session tailored to speed skaters to improve flexibility during skating practices and races.

Generally, an “eligible fitness expense” is the amount of a fee paid to a qualifying entity for a qualifying child to the extent that the fee is attributable to the cost of registration or membership of the qualifying child in a prescribed program of physical activity.

A qualifying entity is a person or partnership that offers one or more prescribed programs of physical activity. In this case, no information was provided on whether the above-noted fees were paid to qualifying entities.

The cost of registration or membership includes the cost to the qualifying entity of the program in respect of its administration, instruction, rental of required facilities, and uniforms and equipment (that are not available to be acquired by a participant for an amount less than their fair market value). These costs do not include the cost of accommodation, travel, food or beverages or any amount deductible under section 63 (child care expenses) of the Act in computing any person’s income for any taxation year.

A prescribed program of physical activity (as defined in subsection 9400(2) of the Income Tax Regulations (the “Regulations”)) does not include a program that is a part of a school’s curriculum. Generally, it includes:

*     a weekly program of a duration of eight or more consecutive weeks in which all or substantially all of the activities include a significant amount of physical activity,

*     a program of a duration of five or more consecutive days of which more than 50% of the daily activities include a significant amount of physical activity, or

*     a program or membership, of a duration of eight or more consecutive weeks that are offered to children by a club, association or similar organization as described in section 9400 of the Regulations.

Subsection 9400(1) of the Regulations states that the physical activity must be supervised, suitable for children, and must not be an activity where a child rides on or in a motorized vehicle as an essential component of the activity. In the case of a qualifying child (other than a child eligible for the disability tax credit), the activity must contribute to cardio-respiratory endurance and to one or more of the following: muscular strength, muscular endurance, flexibility, and balance.

It is a question of fact whether a fee paid is an eligible fitness expense. The first two noted fees are described as registration fees for on-ice training. Since there are two separate registration fees relating to two different time periods, it appears that the two on-ice training programs are in fact separate programs. Therefore, each program would need to be evaluated separately to determine if it would be considered a prescribed program of physical activity.

Based on the information provided, it appears that the other fees noted for additional activities (i.e., fitness activities fees, special training fees, etc.) may be offered by different entities. If these other fees are paid by an individual in respect of a qualifying child to different entities for programs that those entities offer, each of the fees paid for a particular program would need to be examined separately to make a determination as to whether the fees paid are eligible fitness expenses.

Additionally, the Canada Revenue Agency (the “CRA”) will generally rely on the entity that offers the program to establish which activities are part of a prescribed program and to clearly set out the amount of the fee paid that is attributable to the cost of registration for that particular program. The CRA will generally rely on the entity to make such determinations since the entity has the detailed knowledge of the particular program.

Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the taxpayer. The taxpayer may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca. A copy will be sent to you for delivery to the taxpayer.

We trust our comments will be of assistance.

Pamela Burnley, CPA, CA
Manager
Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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