Principal Issues: Whether grandparents can claim child care expenses in a situation where their daughter and her children are living with and supported by them.
Position: It is possible.
Reasons: Each child can be considered an eligible child of a grandparent and the daughter can be considered a supporting person. Because the daughter is attending a designated educational institution, provided all other requirements of the provisions pertaining to the deductibility of child care expenses are met, the expenses may be claimed by the higher income earner which is a grandparent.
Charles Rafuse XXXXXXXXXX (613) 957-8967 2005-014710 February 3, 2006
Dear XXXXXXXXXX:
Re: Child Care Expenses
We are writing in response to your email of August 15, 2005, and our telephone conversation (XXXXXXXXXX/Rafuse) of January 13, 2006, concerning the deductibility of child care expenses under subsection 63(1) of the Income Tax Act (the "Act").
In the situation you described, a daughter and her two children are living in her parents' home. The daughter is returning to school full-time at a designated educational institution. She has no income and her children are under 7 years of age. The grandparents are providing support for the daughter and her children by paying their expenses.
Our Comments
Section 63 of the Act provides a deduction to a taxpayer for amounts paid for child care expenses incurred for services rendered in the year in respect of an "eligible child of the taxpayer". To qualify, the child care expenses must, among other things, be incurred in order to permit the taxpayer, or a particular "supporting person of the child", to perform the duties of an office or employment, to carry on business or, in certain instances, to carry on research, or attend a designated educational institution or a secondary school. Generally, where there is both a taxpayer and supporting person, child care expenses incurred for services rendered in a taxation year for an eligible child may be deducted only by the lower income earner. However, by virtue of subsection 63(2), there are circumstances where the higher income earner may be allowed to deduct the child care expenses. One such circumstance is where the lower income earner is a supporting person that was a student in attendance at a designated educational institution and enrolled in a full-time or part-time program.
In terms of the situation you described above, we note that pursuant to subsection 63(3), an "eligible child" of a taxpayer does necessarily have to be the taxpayer's child. However, the child would, among other things, have to be dependent on the taxpayer or the taxpayer's spouse or common-law partner for support. Therefore, in your case each child could be considered an eligible child of either grandparent. A "supporting person" of an eligible child of a taxpayer can include a parent of the child where the parent resided with the taxpayer at any time during the year and at any time within 60 days after the end of the year. Therefore, in your case the daughter may be considered a supporting person of the children.
In general, there is nothing evident from the situation you described that would, in and by itself, automatically preclude either grandparent from claiming otherwise eligible child care expenses. We would note, however, that such a claim would be limited to that permissible under subsection 63(1). Subsection 63(1) would require, among other things, that the grandparent have sufficient "earned income" as defined in subsection 63(3). While earned income for this purpose would, for example, generally include employment or business income, it would exclude most superannuation or pension income. We recommend that you consult IT 495R3 - Child Care Expenses, which is available on our website at http://www.cra-arc.gc.ca/E/pub/tp/it495r3/README.html.
We trust this information is helpful.
Yours truly,
Randy Hewlett
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch