Surrogacy costs not eligible for a federal adoption tax break: judge

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OTTAWA – A tax court judge has ruled against a Nova Scotia couple in their battle with the Canada Revenue Agency to reduce the cost of surrogacy through an adoption tax credit.

“It’s really disappointing. There has been a lot of stigma associated with surrogacy, and that there’s a lot of misunderstanding of what it’s about. I think … it’s a missed opportunity to really not further stigmatize parents through surrogacy,” said Sara R. Cohen, a Toronto-based fertility law specialist and owner of Fertility Law Canada.

In a December ruling, tax court judge Robert J. Hogan concluded that it was not discriminatory to exclude surrogacy from the federal Adoption Tax Credit (AETC).

“The issue … is whether this small tax disadvantage is discriminatory in the sense that it perpetuates the view that surrogate parents are less worthy of recognition or value as a member of Canadian society. In my opinion, the AETC does not promote prejudice or stereotyping of such nature,” he wrote.

After years of unsuccessful fertility treatments and invitro fertilization procedures, Mark Foley and Shelly Lyn Maynard turned towards surrogacy in 2017 in the hopes of starting their family.

That same year, Foley claimed just over $10,000 in total surrogacy expenses under the federal Adoption Tax Credit (AETC) on his income tax return, $3,811 of which was legal costs and the rest was fees paid to their surrogacy agency.

The AETC is a tax credit that allows parents to claim up to 15 per cent of eligible adoption fees (to a maximum of $16,563) to help alleviate the financial burden of the process. Almost everywhere in Canada, a child who is born of a surrogate mother must then be “adopted” by its parents through the adoption process or legal proceedings.

But the CRA ultimately denied Foley’s claim, arguing that his costs were not “eligible adoption expenses.”

So, the couple appealed the decision to the federal tax court, arguing that the tax credit was discriminating against their human rights by excluding surrogacy.

“The exclusion of surrogacy-related expenses perpetuates or exacerbates disadvantages suffered by surrogate parents,” Foley’s lawyer argued, according to the ruling. Neither Foley nor his lawyer responded to a request for comment.

On the flip side, the CRA argued that there is practically no evidence that surrogate parents are naturally disadvantaged group in the eyes of the Charter of Rights and Freedoms.

It also told the court that the goal of the tax credit was to help children up for adoption, not people seeking to have a child via surrogacy.

“It was designed to encourage domestic and international adoptions of vulnerable children who do not benefit from stable parental relationships,” reads the ruling. “They are disadvantaged compared with children born under surrogacy relationships, who join a family upon birth.”

Ultimately, Justice Hogan sided with the CRA, meaning Foley and his wife would not have access to the tax credit for either of their two surrogate births.

Though he agreed that the AETC allowed for differential treatment by creating tax savings for eligible adoption expenses and not those for surrogacy procedures, the judge found that it did not constitute discrimination against surrogate parents.

“The AETC was tailored to cover adoption expenses because Parliament simply wanted to encourage domestic and international adoptions in the interest of vulnerable children. In this context, the inclusion of surrogacy expenses under the AETC, as requested by (Foley), is inconsistent with the raison d’être of the AETC designed to promote adoptions,” the judge concluded.

Fertility law expert Cohen says the judge’s reasoning is based on outdated perceptions of both adoption and surrogacy, namely that it is increasingly difficult for Canadians to adopt children either nationally or even internationally.

“The problem with adoption right now is we want to encourage you to adopt, but there are way more people who want to adopt than there are children available,” Cohen said.

“I feel it’s one of those ivory tower-esque decisions that has nothing to do with reality faced by the people who are trying to build their families,” she added.

Cohen now fears this decision will set a precedent going forward, thus making it extremely difficult for any other parents hoping to receive a tax break on surrogacy.

She says just the legal fees for the surrogacy process in Canada generally range anywhere from $6,000 to $12,000 in Canada. That amount doesn’t include the cost of the IVF often used to implant the embryo into the surrogate, which can be a very costly process.

“I don’t expect the whole thing to be tax deductible. But I think if we already have the adoption credit, it is discriminatory on the basis of how this child was being conceived. And I think that is that is a missed opportunity,” she concluded.

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