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Tax tip: Claiming childcare expenses

Ryan Gossling, income tax, childcare expenses, child care expenses

A lot of new mamas (and dadas) come to Homeroom unsure about what childcare expenses they can and can’t claim come tax time. 

Below, we look at eligible childcare costs, the amount you can deduct and which parent claims the costs. 

So, what constitutes a childcare expense?

Childcare expenses are amounts you or another person paid to have someone look after an eligible child so that you or the other person could:

  • carry on a business either alone or as an active partner
  • earn income from employment
  • attend school under the conditions identified under Educational program
  • carry on research or similar work, for which you or the other person received a grant

The child must have lived with you or the other person at the time the transaction incurred for the expense to qualify. Usually, you can only deduct payments for services provided in Canada by a Canadian resident. See other situations for exceptions.

What are eligible childcare expenses?

  • Daycare/ day nursery schools or caregivers providing childcare services. An official childcare expense receipt must be provided.
  • If you employ a nanny, those costs are deductible. Contact us if you need help with payroll source deductions here.
  • Boarding school or overnight sports schools/ camps where lodging is involved (see note in Part A of Form T778)
  • Day camp/ sports school expenses where the primary goal of the camp is to care for childrenNote: An institution offering a sports study program is not a sports school.

Children’s sports and arts credits:

Any program that runs for minimum six consecutive weeks would apply. The maximum amount is $1,000 for sports and $500 for arts (eg. swimming lessons, soccer, dance, hockey, theatre, music and art classes.)

Good to know:

  • The child must have been under 16 years of age (or under 18 years of age if eligible for the disability tax credit) at the beginning of the year in which the eligible expenses were paid.
  • You can claim an additional amount of $500 for each eligible child who qualifies for the disability amount and for whom you paid a minimum of $100 in registration or membership fees.
  • Two parents can claim eligible fees for the same child, as long as they do not claim the same fees and the combined amount is not more than $500

Note: Save your receipts, and dig up more info on the children’s arts tax credit here, and for the children’s fitness tax credit here.

Is your child eligible?

An eligible child is a child of you or your spouse or common-law partner, or a child who was dependent on you or your spouse or common-law partner. Net income in the year was less than or equal to the federal basic personal amount ($11,138 in 2014, $11,327 in 2015).  The child must have been under 16 years of age at the beginning of the year, unless the child was mentally or physically disabled.

Who claims the childcare costs?

When the child lives with both parents, the parent with the lower net income (or zero net income) must claim the expense deduction. The supporting parent with the higher income may claim a deduction only during the period in which the lower income spouse or common-law partner is mentally or physically infirm, confined to a bed or a wheelchair, attending full- time at a secondary school or a designated educational institution or incarcerated in a correctional facility.

The amount that can be claimed for childcare is subject to special rules when the lower income spouse or common- law partner is in part-time attendance at a designated educational institution. Special rules also apply for single parents and those who have separated during the year or are divorced.

How much can you deduct?

You can deduct up to $8,000 annually for each child who is aged six or under at the end of the year, and up to $5,000 for each child aged seven to 15 at any time in the year.

This limit goes up to $11,000 annually for each child who is eligible for the disability tax credit (see topic 80). Also, the total deduction can’t exceed two-thirds of the salary or business income of the parent who is required to claim the deduction. However, it’s limited by the actual amounts paid in the year for childcare.

Still have questions? Comment below for a quick response, or call us at 604-739-9536.