Enjoy a night on the town, deduct the costs of the sitter
JG'S NOTE: PLEASE SEE CORRECTION TO THIS ARTICLE AT:
It's date night. You've made the dinner reservations, perhaps secured show tickets and most importantly, booked the sitter.
To ease the financial burden of your well-deserved night out, did you realize that you could be writing off the cost of that babysitter come tax time?
Depending on the ages of your brood, babysitting can qualify as a tax deductible child care expense provided the sitter is not someone under 18 who is "related" to you.
Under the Income Tax Act, related is defined as someone who is connected to you by blood, marriage or common-law partnership, or adoption. This would include you or your spouse's brother, sister, brother-in-law or sister-in-law. It does not include nieces, nephews, aunts, and uncles.
According to the Canada Revenue Agency, in order to make a valid claim for child care expenses, you must be given a receipt showing the amount paid as well as the social insurance number (SIN) of the child care provider or sitter.
But is the lack of a receipt from your fourteen year old sitter who's babysitting the kids tonight fatal to a successful child care deduction claim?
That was essentially the case before the Tax Court earlier this year.
In 2007, Jason Allott claimed about $4,200 of deductible child care expenses for amounts he claimed were paid to two teenagers who babysat his kids. He provided the Court with a detailed statement evidencing the weekly payments he made to the two teenagers.
The first teenager provided an acknowledgement letter confirming the amount she received along with a separate letter with her SIN on it. While numerous attempts were made to obtain a receipt from the second teenager, that sitter's parents refused to provide any information.
While the CRA was prepared to allow the payments made to babysitter one, it maintained that amounts paid to sitter two were simply not deductible since no receipt was provided.
The wording in the Tax Act governing child care expenses contains the follow statement: ".the payment of which is proven by filing with the (CRA) one or more receipts each of which was issued by the payee and contains, where the payee is an individual, that individual's SIN."
But previous Court decisions have concluded that these words are "directory rather than "mandatory." As explained by former Tax Court Chief Justice Donald Bowman in a 1997 decision, "The essence of (this rule) is the deduction of child care expenses, not the collection of tax from babysitters. The language of the provision does not support the view that the filing of receipts is mandatory."
This thought was echoed in a 1998 case where the Court concluded that the requirement to file child care receipts containing the SIN of the payee "is only directory. It is not imperative."
As a result, the Judge found that Mr. Allott's child care payments were indeed fully deductible, notwithstanding the lack of a receipt from the second sitter.