2020-0837481E5 Child care expense deduction

Principal Issues: Whether amounts paid under section 7 of the Federal Child Support Guidelines by Spouse B to Spouse A, for specific child care expenses can be claimed for the child care expense deduction by either Spouse?

Position: No.

Reasons: Not in this hypothetical situation. Spouse B does not reside with the child at the time the amounts are paid. The amounts would likely be considered a reimbursement or other assistance to Spouse A.

Author: Wirag, Eric
Section: 63

XXXXXXXXXX                                                                           2020-083748    
                                                                                                   E. Wirag, CPA, CMA
May 8, 2020

Dear XXXXXXXXXX,

Re: Child expense deduction

This is in reply to your email dated January 23, 2020 requesting our written comments regarding child care expense deductions as a follow-up to our conversation of September 11, 2019 (XXXXXXXXXX/Wirag).

Specifically, you would like our comments on the deductibility of child care expenses by an individual (Spouse A) with custody of a child and who is required to incur expenses for child care in order to work.  You state Spouse A receives payments for a portion of the child care costs from a former spouse (Spouse B) pursuant to Section 7 of the Federal Child Support Guidelines.  You would like to know if the full amount of child care expenses incurred are deductible by Spouse A, or whether the amounts paid by Spouse B to Spouse A would be deductible by Spouse B.

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 Canada Revenue Agency's general position on the deductibility of child care expenses under section 63 of the Act is set out in Income Tax Folio, S1-F3-C1, Child Care Expense Deduction.

To be deductible under subsection 63(1) of the Act, all “child care expense” amounts must be incurred at the time the parent resided with the child and only to the extent that they were paid by that parent to enable the parent to engage in the activities listed in paragraph (a) of the definition of “child care expense” in subsection 63(3) of the Act. See paragraph 1.9 of the Folio for more discussion of these activities.

The requirement that the parent reside with the child at the time the expenses are incurred is specifically provided for in paragraph (a) of the definition of “child care expense.” In our view, the words “resided with” require that the child be physically resident with the parent (i.e., in the parent’s custody) at the time that such parent incurs the child care expenses. In your example, if Spouse B does not reside with the child at the time the expenses for child care were incurred, then Spouse B would not be able to claim a deduction for child care expenses under subsection 63(1) of the Act for the amounts that are paid to Spouse A.

Paragraph 63(1)(d) of the Act provides that a taxpayer is only entitled to deduct child care expenses to the extent that an amount is not in respect of which any taxpayer 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 the taxpayer’s taxable income.  As a result of this provision, if Spouse A resides with the child and is entitled to receive reimbursement from Spouse B for child care expenses, Spouse A would only be entitled to deduct child care expenses net of the reimbursement, provided they otherwise meet all the other requirements to deduct the remaining portion of the expenses.

I trust the information I have provided is helpful.

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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