Principal Issues: 1. Question regarding CRA's treatment of child care expenses where an amount in respect of child care is included in the employee's income under paragraph 6(1)(a).
Position: 1. The amount included as a taxable benefit is considered to be an amount paid for the purposes of the child care expense deduction.
Reasons: See below.
Ponoka Tax Conference
Date: May 22, 2014
Question 11 Characterization of Taxable Benefits
In CRA interpretation 2010-0390931E5, the CRA states:
"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 for the purposes of the child care expense deduction"
a) Does the above statement reflect a general CRA policy that an amount required to be included in a taxpayer's income as a taxable benefit is to be treated as an amount paid by that taxpayer (and not by the person who actually makes the payment) for purposes of claiming any deduction, credit or like amount?
b) With respect to the above question, does the CRA's view differ between amounts taxable as a benefit on account of employment or on account on of shareholdings (i.e. an employment benefit vs. a shareholder benefit)?
c) What case law or legislative authority does the CRA rely on for the above view, if any?
Response:
a) Interpretation 2010-0390931E5 addressed a situation where employees received a taxable benefit under paragraph 6(1)(a) of the Income Tax Act ("Act") for free child care at the employer's child care facilities. The employer was in the business of providing child care.
2010-0390931E5 should not be viewed as a general statement that any taxable benefit received by virtue of employment will be treated as an amount paid by the individual for the purpose of any other deduction or personal tax credit under the Act. Whether an amount is paid for the purpose of any particular deduction or personal tax credit must consider the specific applicable legislation.
b) The CRA has not previously issued a technical interpretation as to whether a benefit received qua shareholder would be considered to be an amount paid for the purpose of the child care expense deduction. Similarly, this question would have to be considered individually for any particular deduction or credit. Taxpayers wishing our views on a particular situation may write to the Income Tax Rulings Directorate for a technical interpretation.
c) As an administrative policy, the CRA will consider the amount of the benefit included in an employee's income in respect of employer assistance with child care to be an amount "paid" on account of child care for the purpose of section 63 of the Act.
Robert Dubis
2014-052860