A casual reading of subsection 63(1) of the Income Tax Act suggests that a taxpayer claiming childcare expenses is required to produce receipts from the person providing the care. The subsection seems to permit the deduction of expenses “the payment of which is proven by filing with the Minister one or more receipts each of which was issued by the payee and contains, where the payee is an individual, that individual’s Social Insurance Number”.
Based on this wording, the filing of the appropriate receipts seems to be a condition precedent to the availability of the deduction. Not so, according to the Tax Court in Allott v. The Queen, 2010 TCC 232:
[8] This Court has ruled on numerous occasions that the words requiring the filing of receipts are “directory” rather than mandatory. Bowman J. (as he then was) noted in Senger-Hammond v. The Queen, [1997] 1 CTC 2728 at paragraph 26:
The essence of section 63 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. For one thing, the word ‘shall’ is not used. Rather it describes a method of proof, which is clearly formal, evidentiary and procedural.
[9] The law was summarized by Morgan J. in Dominguez v. The Queen, 1998 CanLII 479, [1998] 4 CTC 2222 at paragraph 10 (T.C.C.):
If the inquiry is blatantly result-oriented (I am pleased to follow those refreshingly candid words), then I will adopt the label which permits a court to determine as a matter of evidence whether a particular taxpayer has incurred specific expenses on account of child care. In my opinion, the requirement in subsection 63(1) that the Appellant file receipts containing the S.I.N. of the payee is only directory. It is not imperative.
The judge in Allott, despite the absence of receipts, was convinced by the testimony of the husband (the taxpayer) and wife. The husband provided a detailed statement of the expenses incurred and the wife, in oral testimony, confirmed the payments and explained that “numerous attempts have been made to obtain a receipt from the second teenager [the childcare provider]. However, the teenager’s parents have refused to provide the information or to provide contact information for the teenager.” The judge allowed the appeal so that the husband was entitled to deduct the expenses.
The Allott decision was issued under the informal procedure. I suspect, therefore, that the CRA will ignore the decision in practice. The prudent taxpayer will obtain receipts as “directed” by the Act. A taxpayer who is caught without them, however, should consider arguing a case before the Tax Court using Allott as his or her authority.
