2019-0797671E5 Adoption expenses in respect of a stepchild

Principal Issues: PRINCIPAL ISSUES: 1. Whether a step-parent wishing to adopt their common-law partner’s biological child, can claim the adoption expense tax credit in respect of that child. 2) Whether the child’s biological parent can claim adoption expenses incurred by their common-law partner to adopt their biological child.

Position: 1) Yes, if all the requirements in section 118.01 of the Act are met. 2) Likely not.

Reasons: 1) Based on the relevant provincial law, a step-parent is not precluded from adopting their step-child, and the adoption would be recognized as such for the purpose of section 118.01 of the Income Tax Act. 2) It is unlikely that an individual may be entitled to apply under provincial law for an adoption order in respect of their own biological child; therefore, it seems unlikely that an individual’s biological child would meet the definition of "eligible child" of the individual within the meaning of subsection 118.01(1).

Author: El-Kadi, Randa
Section: 118.01

XXXXXXXXXX                                                                                                                                                     2019-079767
                                                                                                                                                                             Randa El-Kadi
June 20, 2019

Re:  Adoption expense tax credit

Dear XXXXXXXXXX,

We are replying to your query of February 26, 2019, regarding the adoption expense tax credit. You indicate that an individual who is resident in a particular province (Alberta) wishes to adopt the child of his or her common-law partner. You have asked whether both the individual (the step-parent) and their common-law partner would be entitled to claim on their income tax returns eligible adoption expenses incurred by the step-parent in respect of the child’s adoption.

Our comments:

This technical interpretation provides general comments about the provisions of the Income Tax Act (the 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 70-6R9, Advance Income Tax Rulings and Technical Interpretations. 

The adoption expense tax credit 

Subsection 118.01(2) of the Act allows an individual to claim an adoption expense tax credit for the tax year that includes the end of the “adoption period” in respect of an “eligible child” of the individual. The credit is determined by multiplying the appropriate percentage (which is 15% for 2018) by the lesser of:

*    $15,905 (for 2018) and 
*    the “eligible adoption expenses” less any reimbursements or any other form of assistance in respect of the expenses.

Definitions in the Act

Subsection 118.01(1) of the Act defines the terms used for the purpose of the adoption expense tax credit.

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.

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.

Conclusions

Taking into account subsection 118.01(2) and the definitions for the adoption expense tax credit, we conclude that only the expenses that an adoptive parent incurs in respect of their adopted child may be claimed for the credit by that individual. A child’s biological parent is not an adoptive parent; therefore, they would not be entitled to claim expenses incurred by their spouse or common-law partner to adopt their child.

Given that adoption is a provincial matter, one would have to refer to the relevant adoption law of the province where the individual resides. In the present case, the relevant law appears to be the Child, Youth and Family Enhancement Act, which includes specific provisions allowing a step-parent to apply for an adoption order in respect of their step-child. Therefore, assuming that the step-child meets the definition of “eligible child” of the step-parent, the latter can claim eligible adoption expenses in respect of their step-child for the tax year in which the adoption is finalized.

Although subsection 118.01(3) of the Act allows an adoption tax credit to be split between individuals, the provision specifies that the individuals must be “entitled” to the credit “in respect of the adoption of an eligible child.” In other words, the credit may be split only between adoptive parents.

We have also considered section 118.8 of the Act which allows (subject to certain limitations) an individual to transfer to their spouse or common-law partner certain unused tax credits for the year; however, we concluded that this provision does not apply because the adoption tax credit is not listed among the credits that can be transferred between spouses or common-law partners.

In summary, we are of the view that, in the situation you submitted, only the adopting parent (that is, the step-parent) would be entitled to claim eligible adoption expenses in respect of the adoption of their step-child, provided that all the conditions in section 118.01 of the Act are met.

Yours truly,

Lita Krantz, 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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