2017-0692561E5 adoption expense tax credit

Principal Issues: Are adoption expenses incurred at two different agencies eligible adoption expenses for the purpose of the adoption expense tax credit?

Position: No.

Reasons: Only expenses incurred at the agency that resulted in the adoption of a child and that meet all the other requirements of section 118.01 are eligible adoption expenses.

Author: Shea-Farrow, Nancy
Section: 118.01

XXXXXXXXXX                                                                                                      2017-069256                                                                                                                                                               Nancy Shea-Farrow
February 21, 2018

Dear XXXXXXXXXX:

Re: Adoption expenses

We are responding to your correspondence of December 15, 2016, which was forwarded from the Winnipeg Tax Centre, and received by this Directorate on March 10, 2017, concerning whether adoption expenses incurred at two different agencies are eligible adoption expenses for the purpose of the adoption expense tax credit.

You have explained in your letter that you and your spouse made applications with two different adoption agencies.  In 2015, one of the agencies placed a permanent ward child with you.  On XXXXXXXXXX, 2016, this child was legally adopted by you and your spouse.

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (“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 70-6R7, Advance Income Tax Rulings and Technical Interpretations.

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 2016 is $15,453.00. The credit is determined by multiplying the appropriate percentage (which is 15% for 2016) by the lesser of:

*     $15,453.00 (for 2016) and
*     the eligible adoption expenses less any reimbursements or any other form of assistance in respect of the expenses.

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 in Canada in respect of the adoption of that child by that individual.

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 an application is made for registration 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.

Taking into account the definitions for the adoption expense tax credit, only the expenses incurred in respect of the child that an individual adopts can be claimed for the credit. Amounts paid for expenses that were incurred at the agency that did not result in a child being adopted cannot be claimed for the adoption expense tax credit. Therefore, only expenses incurred by you and your spouse at the agency that resulted in the adoption of your child and that meet all of the other requirements of 118.01 can be claimed as eligible adoption expenses for the adoption expense tax credit.

We trust our comments will be of assistance.

Yours truly,

Lita Krantz, CPA, CA
Manager - Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate

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