Principal Issues: [TaxInterpretations translation] Are the various services provided by a private educational institution child care services?
Position: It depends on the services. Charges that are for education or board and lodging including meals are generally not child care expenses. Education costs may include, for example, extracurricular activities and special schools. General comments on different services.
Reasons: The definition of child care expenses in section 63(3) of the Act.
XXXXXXXXXX Sylvie Labarre, CA
2004-006772
September 27, 2004
Dear Madam,
Subject: Child care costs
This is further to your letter of March 12, 2004, in which you requested confirmation as to whether the various services listed in the summary table you prepared entitled "Taxation and Child Care Expenses" constitute child care expenses under the Income Tax Act (the "Act"). We apologize for the delay in responding to this request.
In your table you listed different types of services that a private educational institution can provide to its clients. You indicated whether or not the fees paid for these services are, in your opinion, child care expenses.
Our Comments
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is the practice of the Canada Revenue Agency (the "CRA") not to issue a written opinion regarding proposed transactions otherwise than by advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you. These comments may not, however, apply to your particular situation in certain circumstances.
Child care expenses are defined in subsection 63(3). A child care expense must be an expense incurred for the purpose of providing in Canada, for an eligible child of a taxpayer, child care services including babysitting services, day nursery services or services provided at a boarding school or camp, provided that paragraphs (a) and (b) of the definition are satisfied.
Paragraph (d) of the definition of child care expenses in subsection 63(3) excludes from child care expenses certain types of expenses including, but not limited to, expenses paid in respect of education or expenses paid in respect of board or lodging (unless the definition provides otherwise).
Since it is the taxpayer claiming the child care expenses who must ensure that the taxpayer complies with paragraphs (a) and (b) of the definition of "child care expenses" and not the institution providing the child care services, we will only comment on the qualification of the services as child care expenses. We will only comment on those elements of your table for which your position on the qualification of the services as a child care expense does not appear to us to be complete or accurate. The positions you take on the other items listed in the table reflect our positions on what constitutes child care expenses.
Fees for educational services for pre-school children
The CRA's position is that all fees paid to an educational institution in respect of a child who has not attained the age of compulsory schooling (i.e., before kindergarten for children in Quebec) should be considered to be child care expenses unless there is clear and conclusive evidence that the fees are educational expenses. Consequently, there may be situations where such evidence exists and the expenses paid would not be child care expenses because of paragraph (d) of the definition of "child care expenses".
Child care expenses
Since you do not describe the type of services provided under the heading of "Child care expenses" and you appear to have covered all services rendered by a private educational institution under other items, we cannot confirm or deny whether the positive answer you have given under this item for pre-school, primary or secondary school age children is correct. If, for example, the service is a day-care service provided by specialist child care workers, the fees paid for this service would constitute child care costs as long as they are not specifically excluded by the Act, such as fees paid for transport or board and lodging.
Directed studies
Fees charged for supervision during study sessions or other directed supervision activities could constitute child care fees if they are optional. However, the task of the supervising teacher will need to be examined to establish whether it is primarily supervision or education. If the teacher's duties are primarily educational, then the expenses incurred would be excluded from child care expenses by virtue of paragraph (d) of the definition of "child care expenses" in subsection 63(3).
Day camp during a school holiday
The primary purpose of the services offered by a day camp must be the care of the child by providing appropriate child care services in a recreational context. It is therefore a question of fact whether, in a particular situation, child care services have been provided or whether an educational program is primarily offered. If an education program is provided, the fees would be paid as education and therefore excluded from child care fees.
Travel
We are of the view that the fees paid for trips do not represent costs incurred for the purpose of securing custody by entrusting the child to child care services. A trip is not the same as a boarding school, which in its ordinary sense means a school, a private educational facility where pupils are housed and fed. Consequently, the fees paid for the trips do not represent child care expenses, as defined in subsection 63(3).
Special purpose school
It appears to us that the educational aspect of these programs is paramount. The expenses relating to these programs would therefore be considered to be expenses paid in respect of education and would therefore be explicitly excluded by paragraph (d) of the definition of "child care expenses" in subsection 63(3).
Meals
Paragraph (d) of the definition of "child care expenses" specifically excludes expenses paid for board or lodging. In our view, board includes the cost of meals. Consequently, meal expenses charged by a private educational institution would not be part of the expenses paid to a child care facility for the purpose of providing child care to a qualifying child.
Method of calculation
We agree with you that if fees are specifically charged to parents for child care, these amounts should appear on the receipts. However, if the fees are not specifically charged, the private educational institution will have to establish an allocation according to a reasonable method. We do not have criteria for determining what constitutes a reasonable method of allocation, but we have already established that the direct cost of supervision to the private educational institution (i.e. the amount paid as a salary to a person solely for supervising students) allocated among the students actually supervised could be an acceptable method of calculation.
These comments are not advance income tax rulings and do not bind the CRA in any particular situation.
Best regards,
Ghislaine Landry, CGA
for the Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch