Written on behalf of Feigenbaum Consulting
A couple from Nova Scotia whose child was born via a surrogate earlier this year are pursuing a Charter challenge against the Canada Revenue Agency, on the basis that Income Tax Act treats parents of children born through surrogacy differently than adoptive parents, creating an inequality. The parents argue that the current provisions in the Act do not allow families using surrogates to recoup their legal and other costs.
Surrogacy, Adoption, and Tax Credits in Canada
In most Canadian jurisdictions, when a child is born via a surrogate, the woman who carried and birthed the baby is the child’s legal mother at birth. The child’s intended parents are then obligated to take steps to become the child’s legal parents: either through an adoption process or by initiating formal court proceedings.
This generally involves both legal and/or adoption and other agency fees. This is in addition to the often astronomically high costs of the surrogacy procedure itself, which are generally estimated to be between $60,000-$80,000.
Adoption Tax Credit
In an adoption not involving a surrogate, the adoptive parents are eligible to recover some of the costs of an adoption through a specialized tax credit for adoption expenses. Parents who are eligible for this credit can claim an amount for eligible adoption expenses related to the adoption of a child under 18 years of age, up to a maximum of $15,905.
The credit stems back to 2005 when the Income Tax Act was amended to provide financial relief to parents who have children through adoption, and was intended to reflect changing realities for many families.
This can include expenses such as:
- fees paid to a licensed adoption agency;
- court costs and other legal/administrative expenses related to an adoption order;
- reasonable and necessary travel/living expenses of both the child and the adoptive parents;
- document translation fees;
- fees paid to a foreign institution;
- mandatory immigration expenses for the child;
- “any other reasonable expenses related to the adoption” that are required by a provincial or territorial government or a licensed adoption agency.
According to the CRA, more than 1,500 people claimed the adoption tax credit in 2018.
Surrogacy in Canada
However, while this tax credit is available for adoptive parents for expenses such as the above, the couple who are at the center of this legal dispute were denied the credit by the CRA. The parents claim that they have spent more than $100,000 during the time they spent trying to get pregnant and that being eligible for the tax credit would make a significant difference for them.
Surrogacy in Canada is known as “altruistic surrogacy” which means that a surrogate cannot be compensated for the actual surrogacy itself and cannot receive any money for carrying the child. Under the Assisted Human Reproduction Act , a surrogate mother may only be reimbursed for surrogacy and pregnancy related expenses.
In this case, some of the costs that were covered by the parents included:
- a special diet and medication for the surrogate as she developed gestational diabetes while pregnant;
- lost wages for days during which she was too ill to go to work;
- the costs of help around the house for heavy manual labour activities such as shovelling snow.
The parents’ case is scheduled to be heard in the Tax Court of Canada in April. We will continue to follow developments in this matter and will provide updates as they become available.
How Can Feigenbaum Law Help?
If you need assistance with personal tax planning, or are involved in a legal dispute over a tax issue speak to Mark Feigenbaum.
In addition to providing exceptional personal and corporate tax planning services, we regularly represent clients in tax litigation. Our approach is always personalized. We take the time to understand the facts of your case to develop the best possible legal solution. With the world of tax always changing, we take great care to stay current on all developments in the law. When approaching your problem, we carefully consider all administrative solutions available to craft a response that proactively takes into account the policies and best practices of a given tax authority.
As a client, you will have peace of mind knowing that your matters are being handled by industry leaders with years of experience. We know taxes can be stressful, so we work with you to make your tax experience as simple and worry free as possible.