21 September 1990 Income Tax Severed Letter ACC9631 - Charitable Organizations and Employer-provided Day Care

24(1)                                   901293/901295
                                        S. Short
                                        (613) 957-2134

19(1)

SEP 21 1990

Dear Sirs:

Re: Charitable Organizations and Employer-Provided Day Care

This is in reply to your letters of June 12, 1990, wherein you requested information with respect to the above-noted subjects. 24(1) Based upon the above, 24(1) We advise that only a "registered charity" as defined in subsection 248(1) of the Income Tax Act that has applied to the Minister in prescribed form for registration and that is, at that time, registered as a charitable organization, private foundation or a public foundation, may issue receipts for income tax purposes. 24(1) The tax treatment of benefits enjoyed by employees utilizing employer-sponsored child care facilities is currently under review.

Accordingly, some of the questions in your letter cannot be answered at the present time. We can, however, provide you with some guidelines on the subject. Where a company hires someone to do consulting with regard to the design of a child care program for its employees, reimburses employees for child care expenses incurred or pays an employee's child care expenses directly to a child care facility, such expenses are ordinarily deductible to the company by virtue of paragraph 18(1)(a) of the Income Tax Act, subject to the rule in section 67 of the Act that the expenses be reasonable in the circumstances. It is not relevant whether the child care facility is for profit or a registered charity for the purposes of determining whether the costs paid by the employer company are deductible in calculating income.

Similarly, reasonable management fees and other current expenses associated with the creation of a day care facility paid by a company are generally deductible under paragraph 18(1)(a) of the Act. Costs of a capital nature (e.g. - purchase of equipment) are not deductible in the year but may be capitalized for the purposes of claiming capital cost allowance. The same general guidelines would apply if a company chose to create its own in-house facility, rather than hire someone else to design and create the centre.

Where an employer reimburses an employee or provides for the direct payment of all or a portion of an employee's child care expenses, the employee is considered to be in receipt of a taxable benefit pursuant to paragraph 6(1)(a) of the Act.

We trust our comments are of assistance to you.

Yours truly,

for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch