Tax Design and
Legislation Branch
Tax Legislation bulletin Number 99-2, August 1999
Introduction
In the 1998 Budget, Ontario announced the Workplace Child Care Tax Incentive (the “WCCTI”) to support businesses that create additional licensed child care facilities or improve existing licensed child care facilities for children of working parents. The rules discussed in this bulletin are contained in section 13.2 of the Corporations Tax Act (CTA) and subsection 8(15.2) and section 8.3 of the Ontario Income Tax Act. This bulletin is provided as a guide for taxpayers. It is not intended as a substitute for the legislation. For precise details, the reader should consult the appropriate statute.
Table of Contents
- General
- Tax Incentive
- Qualifying Expenditures
- Partnerships
- Reduction of Non-capital Loss
- Confirmation
1. General
The WCCTI is available to businesses (other than those in the business of providing child care services) that incur qualifying expenditures to create additional licensed child care facilities or to improve existing licensed child care facilities in Ontario. This includes businesses that make contributions to unrelated licensed child care operators that use the contributions to create additional child care facilities or improve existing child care facilities in Ontario.
The business must operate out of a permanent establishment in Ontario and be subject to tax on its income, i.e., non-profit and other tax-exempt businesses do not qualify.
2. Tax Incentive
For corporations, the incentive is a deduction in computing income and for unincorporated businesses it is a refundable tax credit. The incentive is in addition to any other deductions in respect of the qualifying expenditures that the businesses may claim for income tax purposes.
2.1 Corporations
For a corporation, the WCCTI is an additional 30 per cent deduction for qualifying expenditures for the taxation year. Where a corporation allocates part of its taxable income to another jurisdiction, the deduction is grossed-up to provide a full deduction from Ontario source income. This is achieved by dividing the qualifying expenditures by the Ontario allocation factor as follows:
WCCTI = (A / B) × 30%
where ,
A = qualifying expenditures for the taxation year; and
B = Ontario allocation factor for the taxation year.
For example, if a corporation's qualifying expenditures for a taxation year are $100,000 and its Ontario allocation factor is 50%, its WCCTI for the year would be $60,000 (($100,000 / 50%) × 30%). However, after applying the Ontario allocation factor in computing the corporation's portion of taxable income attributed to Ontario, the actual deduction from Ontario income is $30,000 (60,000 × 50%).
2.2 Unincorporated Businesses
For an unincorporated business, the WCCTI is a refundable tax credit of 5% of the individual's qualifying expenditures for the taxation year. It must be claimed on the Ontario Tax Credit form, TIC(ONT.) and is displayed on line 36 of that form.
3. Qualifying Expenditure
A business's qualifying expenditures for a taxation year are expenditures incurred after May 5, 1998 which are:
- Capital costs incurred in the construction or
renovation of a licensed child care facility that are included by the business
in the taxation year in the undepreciated capital cost of Class 1, 3, 6, or 13
assets of Schedule II to the Income Tax Act (Canada) (ITA).
- Capital costs incurred to acquire equipment fixed to a
playground of a licensed child care facility that are included in the taxation
year by the business in the undepreciated capital cost of Class 8 assets of
Schedule II to the ITA.
(Note The "available for use" rules apply in determining the timing of the inclusions in 1 and 2 above)
- Cash payments and qualified contributions made by the business to an unrelated licensed child care facility and used by the operator of the facility in the business's taxation year to construct a new child care facility, to renovate an existing licensed child care facility, or to acquire playground equipment.
The unused portion of cash payments and qualified contributions will be qualifying expenditures in the business's taxation year when the facility uses them for the above purposes.
If the business has received or expects to receive government assistance in respect of the qualifying expenditures at the time it is required to deliver its tax return, the qualifying expenditures for the taxation year must be reduced by the government assistance. A repayment of any portion of the government assistance in a subsequent year will be treated as a qualifying expenditure in the year the repayment is made.
3.1 Licensed Child Care Facility
A licensed child care facility is a day nursery operated under a licence issued by the Ministry of Community and Social Services under the Day Nurseries Act. Every eligible child care facility under that Act is assigned a Day Nurseries Number by the Ministry of Community and Social Services.
3.2 Qualified Contributions
A qualified contribution is one made by the business to a licensed child care operator to be used for the construction or renovation of a licensed child care facility or for the acquisition of playground equipment. The amount of a qualified contribution will be equal to:
- The fair market value of material or property transferred by the business to the child care facility;
- The fair market value of services performed by the business for the purpose of constructing or renovating the child care facility; or
- The reasonable monetary value of a benefit derived from a loan or loan guarantee given by the business to the child care facility.
4. Partnerships
Corporate Partners
Where a corporation is a member of a partnership (other than a limited partnership), and the partnership incurs a qualifying expenditure for the fiscal year that ends in the taxation year of the corporation, the corporation may include its share of the partnership's qualifying expenditure in computing its qualifying expenditures for the taxation year. The corporation's share of the qualifying expenditures of the partnership is based on the percentage of the corporation's income or loss of the partnership.
Individual Partners
Where a business is carried on by a partnership, the individual members of the partnership may claim a tax credit based on the member's reasonable share of the partnership's qualifying expenditures. Limited partners are prohibited from claiming the credit.
5. Reduction of Non-Capital Loss
Where a corporation's WCCTI deduction creates a non-capital loss which is then applied to reduce the income of other taxation years, the amount of the non-capital loss may be subject to reduction. Under section 35 of the CTA, the Minister may reduce the non-capital loss applied if the Ontario allocation factor for the taxation year to which the loss is being applied exceeds 120% of the Ontario allocation factor for the taxation year in which the loss is incurred. This reduction is to prevent a corporation from applying grossed-up losses in a low allocation year to unduly reduce income in a high allocation year.
6. Confirmation
To claim the WCCTI in respect of cash payments and qualified contributions, the business must obtain written confirmation from the child care operator of:
- the amount of money and qualified contributions that have been used by the operator in the taxation year of the business for the purpose of constructing or renovating a child care facility or acquisition of playground equipment; and
- the operator's licence number under the Day Nurseries Act.
Businesses need not attach this confirmation to their tax return. However, they must retain the document in their records for any subsequent review by the Ministry of Revenue.
For further information please contact:
Ministry of Revenue
Corporations Tax Branch
Tax
Advisory
33 King Street West
Oshawa, Ontario L1H 8H5
Tel: (905)
433-6513
Fax: 905 433-6747
