Principal Issues: (1) Is the portion of the registration or membership fee attributable to the cost of hockey jerseys that are given away to participants at the end of the season included in the eligible fitness expense?
(2) Can increased registration or membership fees - due to the fact that participants do not engage in fundraising - give rise to the Children's Fitness Credit?
Position: (1) Yes, provided the jerseys have little or no resale value at the time they are given away.
(2) The increased registration or membership fee may constitute an eligible fitness expense provided the conditions of section 118.03 are met.
XXXXXXXXXX 2007-024734 François D. Bordeleau, LL.B. September 28, 2007
Dear XXXXXXXXXX:
Re : Children's Fitness Tax Credit - Eligible Fitness Expenses
The following is in response to your comments made through the Canada Revenue Agency's ("CRA") Web site regarding eligible expenses incurred for purposes of the Children's fitness tax credit ("CFTC").
Specifically, you make reference to a situation where a local hockey association provides hockey jerseys to participants in the course of a youth hockey league running over the winter months. At the end of the season, you state that the participants are free to retain the jerseys at no extra cost.
You also mention the situation where a qualifying entity offering a program of prescribed physical activity increases its registration or membership fees due to the fact that its members do not engage in fundraising activities. You wish to know whether the increased registration fees can give rise to the CFTC.
Unless otherwise stated, all statutory references are to the Income Tax Act.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R5 entitled Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the enquiry should be addressed to the relevant tax service office. The following comments are, therefore, of a general nature only and are not binding on the CRA.
Pursuant to section 118.03, an eligible fitness expense means the amount of a fee paid that is attributable to the cost of registration or membership of a qualifying child in a program of prescribed physical activity. For the purpose of the CFTC, this cost 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 at the time, if any, they are so acquired.
However, an eligible fitness expense does not include the cost of accommodation, travel, food or beverages nor does it include any amount deductible under section 63 (child care expenses) in computing any person's income for any taxation year.
With respect to hockey jerseys that are given away to participants at the end of a youth hockey season, the CRA is of the opinion that the portion of the registration or membership fee attributable to the cost of the jerseys can be included in the eligible fitness expense provided the jerseys have little or no resale value at the end of the hockey season and that the other conditions of section 118.03 are met.
In the case of a qualifying entity increasing its registration or membership fees due to the fact that its members do not engage in fundraising activities, the increased registration or membership fee will qualify as an eligible fitness expense as long as the requirements of section 118.03 are met. Please note that the eligible fitness expense for purposes of the CFTC cannot exceed $500 for each qualifying child of an individual.
Additional information on the CFTC is available on the CRA's Web site at : http://www.cra-arc.gc.ca/whatsnew/fitness-e.html.
We trust the above to be satisfactory.
Louise J. Roy, CGA
Acting Manager
Individual, Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate