Kwan v. R. – TCC: Parent allowed bulk of child care expenses claimed; Court criticized CRA’s attempt to cherry pick expenses and second guess choices of parents

Kwan v. R. – TCC:  Parent allowed bulk of child care expenses claimed;  Court criticized CRA’s attempt to cherry pick expenses and second guess choices of parents

Kwan v. The Queen (September 11, 2018 – 2018 TCC 184, Pizzitelli J.).

Précis:   This case is illustrative in demonstrating both the wide variety of possible child expense claims and the Court’s refusal to substitute CRA’s concept of reasonable child care expenses for that of the children’s parents.  CRA disallowed $5,086 of expenses claimed.  The Court allowed $4,621, disallowing only $465.  There was no order as to costs since this was an informal procedure appeal.

 Decision:   The taxpayer and his spouse both worked full time in busy jobs and had two young children to keep occupied while they were at work:

[2]  The Appellant had two children in that year, a son who turned 12 that year and a daughter 10. The Appellant was a banker who worked generally Monday to Friday from 9:00 a.m. to 5:30 p.m., while his spouse was a mortgage broker who worked similar office hours but also some evenings and weekends due to client demands. There is no dispute the children attended school on a full-time basis and were finished at about 3:00 p.m. daily.

[3]  The Appellant enrolled and paid for both or any one of the children to be involved in different activities after school throughout the year; including in chess programs, math tutoring classes, Chinese language classes, ski class and summer camp as well as hired two high school students and two university bilingual students to pick them up from various classes or mind over them during the year. The picture painted from the evidence is that the Appellant and his spouse are a modern busy working couple who have chosen a plethora of activities and care arrangements for their children to cover the after school hours before the finish of their work day.

[4]  The Appellant takes the position that all the expenses he incurred for these activities and services was to enable he and his wife to work their jobs or run their businesses; without which one of them would not be able to work. The Respondent takes the position that the activities the Appellant paid for were activities that do not qualify for “child care expenses” within the meaning of subsection 63(3) of the Income Tax Act (the “Act”).

[5]  Section 63 of the Act generally allows a taxpayer to deduct child care expenses up to $5,000 for an eligible child over 7 years of age and under 16 years of age; $8,000 for an eligible child under 7 years of age and $11,000 for a disabled child. In this case, the Appellant would have been entitled to deduct up to $5,000 for each of his two children.

[6]  Subsection 63(3) of the Act defines “child care expense”:

child care expense means an expense incurred in a taxation year for the purpose of providing in Canada, for an eligible child of a taxpayer, child care services including baby sitting services, day nursery services or services provided at a boarding school or camp if the services were provided

(a) to enable the taxpayer, or the supporting person of the child for the year, who resided with the child at the time the expense was incurred,

(i) to perform the duties of an office or employment,

(ii) to carry on a business either alone or as a partner actively engaged in business,…

(Emphasis added)

By agreement the fees claim for camp attendance were reduced from $420 to $250 to reflect the statutory maximum.

The Court denied a small amount for a chess tournament and for a Friday spent skiing at Whistler:

[22]  I allow all the expenses claimed except for the following on which I was not convinced were necessary to enable the Appellant or his spouse to work. The Appellant is denied $35 paid for his son to attend a chess tournament on a Saturday with a friend. There is no evidence the Appellant was required to work Saturdays or that his spouse was not available for their care at that time. Likewise, the $260 paid to enroll the children in the Whistler Ride Tribe program which consisted of skiing all day Fridays, when they could have been in school, does not appear to have facilitated the parents to work and appears to be for a primarily recreational purpose. As earlier mentioned, the camp expense claim will also be reduced by $170.

The Court was critical of the Crown’s attempt to whittle down the other expenses claimed:

[18]  Adopting the purpose test, I conclude that as there is no dispute both parents worked full-time Monday to Friday, I am inclined to accept the evidence of the Appellant that enrollment of their children in Chinese classes after school hours was for the purpose of enabling them to work. I find the same for the chess, golf and other like classes the children were enrolled in with the exceptions noted below. Likewise, I find that hiring the two high school students, DL and JL, paid $345 in total, to pick up the children from classes and mind them clearly falls within the most basic definition of child care. For the same reasons, payments made to university students, JH and LP of $840 and $280 are deductible. Let me also add, that I accept that the Appellant was required to rely on more than the two high school students to care for their children after school hours and in my opinion, it does not matter that the university students charged $5 more per hour and were bilingual so as to speak French to the Appellant’s children. It is not for the state to decide who minds the Appellant’s children as long as the expenses claimed are reasonable.

[19]  I also wish to comment on the suggestion of the Respondent that suggested higher hourly expenses for class instructors or student minders should not be allowed if opportunity exists for incurring lower costs. With respect to the Respondent, as Lamarre Proulx J. stated in Lessard v The Queen, 2003 TCC 266, [2003] TCJ No. 231, at paragraph 12:

…The taxpayer is responsible for choosing…the child care services he or she wishes to use; the taxpayer makes this choice on the basis of the child's needs, and this choice is an exercise of parental discretion.

As a result the taxpayer was allowed roughly 90% of the expenses claimed.  There was no order as to costs since this was an informal procedure appeal.