Childcare expense deductions are considered expenses incurred by parents to allow those parents to work, carry on business attend school or a designated education institution (full time or part time) or carry on research for which a grant was received.
The maximum amounts that can be claimed for children under age seven is $8,000 and for children over the age of seven and under age sixteen is $5,000. Where children are eligible for the disability tax credit, the maximum claim amount will increase to $11,000.
Under the definition of child care expenses, the expense must be incurred for the purpose of providing child care services in Canada (certain exceptions to the “in Canada” requirement exist), for an eligible child. This includes payments to:
- caregivers providing child care services;
- day nursery schools and daycare centers;
- educational institutions, for the part of the fees that relate to child care services;
- day camps and day sports schools where the primary goal of the camp is to care for the children (an institution offering a sports study program is not a sports school); or
- boarding schools, overnight sports schools, or camps where lodging is involved.
If you choose to have an individual provide these child care services, there are certain situations you should be aware of. If you incur advertising expenses or placement agency fees to locate a child care provider, these would be considered child care expenses, as would any mandatory registration fees that you would have to pay. Also, if you choose to hire a nanny, you will be considered to be the employer of the nanny, and would be required to deduct income tax, CPP and EI from the payments, and you would be required to remit these as well as the employer portion of CPP and EI to the CRA. Your nanny would be entitled to vacation pay, overtime and sick leave.
It is also important to note that the individual who provides the child care services may not be:
- a father or mother of an eligible child
- a supporting person of the eligible child
- a person for whom you or another person has deducted a tax credit under section 118 for the year; or
- a person who is under 18 years of age and who is related to you.
Individuals are related if they are connected by blood relationship, marriage, common-law partnership or adoption. For example, your brother-in-law or sister-in-law would be related, while a niece, nephew, aunt or uncle is generally not considered to be related to you.
The term eligible child means a child of the taxpayer or of the taxpayer’s spouse or common-law partner or a child who is dependent on the taxpayer or on the taxpayer’s spouse or common-law partner for support and whose income for the year does not exceed the basic personal amount for the year. The child must be under sixteen years of age at some time during the year or be dependent due to a mental or physical infirmity. The child must have lived with you when the expense was incurred for the expense to qualify.
The tax filing process also provides an occasion to strategize for tax planning opportunities. Shajani LLP Chartered Professional Accountants have a team of Calgary Accountants, Edmonton Accountants and Red Deer Accountants ready to assist you in your personal tax filings and tax planning strategy. Consider using us to file your tax returns.
This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action.