There's a tax break for adoption but not surrogacy — is that fair?

People who come to parenting through adoption can write off agency costs, legal fees and travel expenses on their taxes. People who become parents through surrogacy cannot. Is that a violation of the Charter?

6 minute read

Mark Foley and Shelly Maynard went through several unexplained miscarriages and two failed attempts at IVF before they turned to surrogacy.

Even before embarking on that next step, they'd spent a fair bit of money in their efforts to become parents. Then surrogacy added more right up front. There was the $6,497 agency fee — to help them find a surrogate — and $3,811 in lawyers' fees to advise them and their surrogate, and to draw up a contract. This was all paid out even before the surrogate was pregnant. 

At tax time the following year, they were surprised to learn that none of those surrogacy expenses could be written off. Even more surprising was the fact that, although there was no tax relief for them, couples in the same situation — but who had adopted a child, rather than turning to surrogacy — were eligible for a tax credit. The credit included agency and legal fees that looked very similar to theirs. 

It didn't seem fair. So for tax year 2017, Foley decided to file as though it were: he claimed the $10,308 in expenses under the adoption tax credit. 

"I said, 'Why not try?'" says Foley.

The Canada Revenue Agency (CRA) disallowed his claim. 

He appealed. 

The CRA confirmed that they wouldn't accept it.

He stood firm. 

The case is now before the Tax Court of Canada.

The Halifax couple, with their lawyer, Edward Sawa, are arguing that they are facing discrimination on the grounds of family status. They happen to be parents via surrogacy, but if they had been parents via adoption, says Sawa, they'd be treated differently — more favourably — by the Income Tax Act.

Family status, like age and race and gender identity, is a protected category under the Canadian Charter of Rights and Freedoms. The tax law is violating subsection 15(1) of the charter, says Sawa, because it creates a distinction between two types of families. And that's not allowed.

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Section 118.01 of Canada's Income Tax Act currently offers a tax credit of up to $15,000 for certain adoption expenses. These include:

• fees paid to an adoption agency licensed by a provincial government

• court costs and legal and administrative expenses related to an adoption order

• reasonable and necessary travel and living expenses

• document translation fees

• mandatory fees paid to a foreign institution

• mandatory expenses paid for the immigration of the child

• any other reasonable expenses related to the adoption required by a provincial government or an adoption agency licensed by a provincial government 

Before 2006, the Income Tax Act did not contain the tax credit. So what led to its insertion? Who was behind it? What was the thinking?

It turns out the adoption tax credit was spearheaded by Jay Hill, a Conservative MP from British Columbia. Hill introduced a private member's bill on the matter in 2001. In February, 2004, there was a discussion about it in the House of Commons.   

Hill argued that all of society benefited when adoption took place. "I believe that our tax system should acknowledge this contribution," he said. Relieving some of the financial burden was one way to do this.

The record indicates that he was also mindful of the burden on families who used assisted reproduction. "In some cases, where people are repeatedly trying every conceivable scientific method to conceive, to have a child naturally, it gets very expensive," he said. "I would certainly be willing, as a private member, to look at ways in which we could address that further than the existing tax deductions that are available for those procedures."

Fellow Conservative MP Charlie Penson commended the bill. "It recognizes that the family is the cornerstone of society... We need to encourage people to have children and to adopt them if necessary."

Both men openly acknowledged the economic importance of children — as tomorrow's taxpayers. Penson pointed out that only immigration was keeping Canada's population from shrinking, and that without more incentives to have children, "[t]here will not be very many people to pay the bills."

But Liberal MP John McKay argued, somewhat presciently given the matter now before the Tax Court, that the government should not pick favourites. "If the bill were to go through, an adoptive parent would have possible discretionary expenses that would not necessarily be available to parents who acquire their children by means other than adoption," he said. "There are other examples of expenses in reproductive technologies that, frankly, are not recognized. Again, how does the Government of Canada preference one family over another?

"Quite simply, some adoptions are quite expensive while others are not. Similarly, some family pregnancies are quite expensive while others are not. The Government of Canada, again, should not be in the business of giving preference to one family over another." 

"From the government's standpoint, we must treat all families equally... A child is a child is a child."

Nonetheless, the ruling Liberals did end up incorporating the adoption tax credit into the law, despite the fact that the idea came from an opposition member. In a phone call, Jay Hill told me he credits the openness of Paul Martin, finance minister and then prime minister. Hill recalls walking across the aisle and sitting down with Martin to discuss the bill's importance. "For whatever reason," Hill says, "he felt moved by this issue enough to overlook the fact that I was the opposition."

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In the 2005 budget document, the new tax credit was listed under the heading of "Tax Fairness." Is it fair?

Amir Attaran, a law professor at the University of Ottawa, thinks there's probably a good case to be made for extending the tax credit to families using surrogacy. But he thinks discrimination on the grounds of disability, rather than family status, would make a more convincing case.

Carolyn McLeod, a philosophy professor at Western University, in London, Ontario, points out that there are some important differences between adoption and surrogacy. One is that, at least when domestic, adoption reduces a financial burden on the state. 

Another difference I couldn't help notice is that, unlike adoption agencies, surrogacy agencies are not licensed. They are not even regulated. (As I've written previously, this ought to change.)  

However, given that international adoptions as well as domestic adoptions are eligible for the existing deduction, given that a motivation for the tax break was that families are the "cornerstone" and children are an economic good, it feels reasonable to consider extending tax relief to families who use surrogacy.

"Surrogacy is just something that's been overlooked," says Sawa. "We're just keeping up with the times."

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A couple wanted a child. They were unable to have a child without assistance. They became parents through assisted reproduction and surrogacy. They incurred expenses in similar ways to how they might have had they pursued adoption. Is it unfair that they are denied comparable tax relief?

We may not hear the verdict any time soon. Because of COVID restrictions, this case has been postponed several times already. There is no date currently set. 

In the meantime, Foley and Maynard welcomed not only their first child, Oscar, in January 2019, but also a second child, Vincent, also via surrogacy, in April 2020. 

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