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
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.
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
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%
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%).
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.
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.
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
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;
- The reasonable monetary value of a benefit derived
from a loan or loan guarantee given by the business to the child care facility.
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.
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.
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.
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
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 Finance.