Principal Issues: Whether a day care subsidy is a taxable benefit to employees.
Position:
The subsidy provided by the employer from offering its employees reduced rates at the day care centres it operates will result in a taxable benefit to the employee.
Where an employee is required to include an amount in income as or on account of the benefit derived from employer assistance with child care, the amount of the benefit included in income will be considered to be an amount paid on account of child care for the purpose of determining the eligible costs under section 63 of the Act.
Reasons: While it is our general position that no amount is included in an employee's income from the use of child care facilities managed by the employer and available to all employees for little or no cost, this position does not extend where the employer subsidizes a facility which is operated by a third party in exchange for subsidized rates for its employees or where the employer makes the facilities available to non-employees at rates in excess of that which is charged to employees. Where the employer provides child care to the public at large for a fee greater than that charged to its own employees, the difference is considered to be a subsidy to the employee which must be included in the employee's income from employment.
2005-012466
XXXXXXXXXX Charles Rafuse
613-957-8967
May 5, 2005
Dear XXXXXXXXXX:
Re: Child Care Expenses
This is in reply to your email of April 8, 2005, requesting whether or not employer subsidized childcare expenses of an employee results in a taxable benefit.
Specifically, you have indicated that the XXXXXXXXXX (the Region) operates day care facilities across the Region of XXXXXXXXXX and these day care services may be offered at a reduced or subsidized rate to employees.
Our Comments
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we offer the following general comments.
Paragraph 6(1)(a) of the Income Tax Act (the "Act") includes in an employee's income the value of any benefit received or enjoyed by the employee in respect of his or her employment. It is our view that where a personal expense is paid directly by an employer, the employee will normally be considered to have received a taxable benefit. Accordingly, it is our view that in the situation outlined above, the amount of the subsidy provided for child care will result in a taxable benefit to the employee.
You also asked about a situation where a day care facility would be situated at XXXXXXXXXX and available to regional staff at a rate determined by that facility. While it is our general position that no amount is included in an employee's income from the use of child care facilities managed by the employer and available to all employees for little or no cost, this position does not extend where the employer makes the facilities available to non-employees at rates in excess of that which is charged to employees. Accordingly, should the Region offer child care to the public at large at XXXXXXXXXX for a fee greater than that charged to its own employees, the difference is considered to be a taxable employment benefit.
It should be noted that where an employee is required to include an amount in income as or on account of the benefit derived from employer assistance with child care, the amount of the benefit included in income will be considered to be an amount paid on account of child care for the purpose of determining the eligible costs under section 63 of the Act. However, the amount deductible by the employee or a supporting person will be limited to the amount otherwise determined under that provision.
We trust this information is helpful.
Yours truly,
John Oulton, CA
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch