Which fees and programs qualify
School’s out for summer … so, what to do with those kids? Well, if you’ve got them enrolled in either summer camp or other fitness programs, you may be able to claim the costs as a non-refundable tax credit on your 2008 tax return.
Advisors will recall that the new “children’s fitness credit” came into effect for the first time in 2007, yet many of your clients may not understand how the rules work and what activities actually qualify for this credit. Here’s an overview of the rules.
History of the credit
The credit can be traced back to the government’s May 2006 federal budget, in which the Conservatives introduced this new, non-refundable children’s fitness tax credit for up to $500 in “eligible fees” for the enrolment of a child under 16 in an “eligible program of physical activity” beginning in 2007. The credit is worth 15 per cent of the amount spent, up to the $500 maximum per child.
In 2006, Finance Minister Jim Flaherty appointed an expert panel of health and physical-fitness experts to advise as to what types of programs of physical activity should qualify for the new credit. The panel delivered its recommendations to the minister in October of that year and it is upon this report that the government based its definition of an “eligible program.”
Eligible activities
An eligible program of physical activity, for the purposes of the new credit, is defined as “an ongoing, supervised program, suitable for children, in which substantially all of the activities undertaken include a significant amount of physical activity that contributes to cardio-respiratory endurance, plus one or more of: muscular strength, muscular endurance, flexibility and balance.”
The above definition should cover not only most sports, but should also be broad enough to encompass other children’s recreational programs that involve a substantial physical exertion component, such as dance lessons.
Taking into account Canada’s Physical Activity Guides for Children and Youth, published by the Public Health Agency of Canada, in order for a program to be eligible for the tax credit, it should consist of at least 30 minutes of “sustained moderate to vigorous physical activity” per session for children under the age of 10. Kids 10 and over should be active for at least an hour.
Furthermore, the government stated that the programs will only be eligible for the tax credit if they are at least eight weeks long in length with a minimum of one session per week. Children’s camps may also qualify if they are at least five consecutive days, provided half the program time is devoted to physical activity.
What about children’s memberships in gyms or recreational community centres? Good news — the child’s membership dues paid to join such a club should also qualify provided they join for at least two months and no less than half the child’s time is spent on qualifying physical activities. The cost of extracurricular physical activities at school will also be eligible for the credit.
Recent technical interpretations
In the two years since the announcement of the credit, the Canada Revenue Agency has responded to several technical interpretations regarding various aspects of the credit. Here’s a few of them that may be of some interest to your clients.
The CRA was asked about a situation in which a local hockey association provides hockey jerseys to participants in the course of a youth hockey league running over the winter months. At the end of the season, the participants were able to keep the hockey jerseys at no extra cost.
The CRA responded that the portion of the registration or membership fee attributable to the cost of the jerseys can be included in the eligible fitness expense provided the jerseys have little or no resale value at the end of the hockey season (2007-0247341E5).
The CRA was also asked whether wakeboarding and waterskiing programs would be eligible for the children’s fitness tax credit.
While not specifically saying “no,” the CRA referred the taxpayer to the Expert Panel for the children’s fitness tax credit, which recommended that “activities requiring the use of a motorized vehicle not qualify as an eligible program of physical activity.” The Department of Finance also issued a statement that “sporting, recreational and other activities in which motorized vehicles (automobiles, motorcycles, power boats, airplanes or snowmobiles, for example) are used as an essential component of the activity will also be excluded.” As a result, it’s likely that wakeboarding and waterskiing may not qualify for the credit (2007-0237401M4).
The CRA also was asked whether bowling (2007-0237401M4) and soap-box racing (2007-0222161M4) would qualify for the credit, but in both these cases, the CRA refused to give a firm answer, stating only that “it will not be making general determinations on whether a particular activity is either eligible or ineligible. The organization offering the program will have the detailed knowledge that is necessary to determine if [the] guidelines” discussed above are met.