Tax Quarry

On May 29 2007, the CRA issued a technical interpretation on section 118.03 of the Income Tax Act (“Act”) Canada in response to an inquiry made by a taxpayer.

Section 118.03 provides the governing rules for the children’s fitness tax credit.  The credit is based on an amount paid in the year (up to a maximum of $500) by an individual.  The program must be an eligible expense for a child under 17. 

The taxpayer raised two distinct questions.  The first question the CRA was asked to respond to related to whether the cost of a uniform included in a program’s registration fee will affect the calculation of the fitness tax credit.  What must be decided is whether the uniform is an “eligible expense” as defined under the Act.  The Act defines eligible expense as a fee attributable to the cost of the child’s registration or enrolment in a program.  The CRA’s perspective was that in situations where the uniform is used for the program and has no residual value, the cost of the uniform will not have to be deducted from the registration fee. 

The second issue was whether financial assistance or discounted registrations provided to a low-income parent would affect the individual’s eligibility for the credit.  The CRA determined that a low-income parent’s who receives financial assistance or a discounted registration will still be eligible for the fitness credit.  However, only the amount paid by the individual receiving assistance can be used in calculating the credit. 

To review the CRA’s comment on these issues, search for document number 2007-0233601M4 on their website.

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September 12, 2007