2019-0829901E5 Deductibility of child care expenses

Principal Issues: Whether a taxpayer is required to reduce the amount of child care expenses that they would otherwise claim under section 63 by the amount that the taxpayer is entitled to receive as a reimbursement from the other parent, despite the fact the taxpayer did not receive the amount owing.

Position: Yes.

Reasons: See response.

Author: Underhill, Cynthia
Section: ITA: 63(1)(d)

XXXXXXXXXX                                                                            2019-082990
                                                                                                    C. Underhill
May 8, 2020

Dear XXXXXXXXXX:

Re: Deductibility of child care expenses

This is in reply to your correspondence dated November 5, 2019, regarding the deductibility of child care expenses under section 63 of the Income Tax Act (the Act).

More specifically, you asked whether you are required to reduce the amount of child care expenses that you would otherwise claim under section 63 of the Act, by the amount that you are entitled to receive as a reimbursement from the other parent, despite the fact that you did not receive the amount owing.

Our comments:

This technical interpretation provides general comments about the provisions of 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.

Section 63 of the Act provides for the deduction of child care expenses paid in a calendar year in respect of an eligible child of the taxpayer, where all the requirements of the Act have been met.

Under paragraph 63(1)(d) of the Act, no deduction may be claimed for child care expenses for which any taxpayer is or was entitled to a reimbursement or any other form of assistance unless the reimbursement or assistance is included in a taxpayer’s income and is not deductible in computing that taxpayer’s taxable income.

The word “entitled” in the phrase “is or was entitled to a reimbursement” is not defined in the Act. Where the legislation does not define a word, we generally interpret the word using its ordinary or everyday meaning (e.g., dictionary definition) and/or look to case law for guidance. Accordingly, based on the dictionary definition for the purposes of paragraph 63(1)(d) of the Act:

*    the word “entitled” means the right to receive or a claim of right.

Therefore, in our view, the amount of child care expenses paid in a calendar year must be reduced by the amount that the taxpayer is entitled to receive as a reimbursement from the other parent, despite the fact that the taxpayer did not receive the amount owing. This is due to the fact that the receiving parent has a right to receive these amounts.

We trust our comments will be of assistance to you.

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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