Claiming Child Care Expenses in Canada

Having a child brings more than just added joy to your life. In fact, many Canadians are able to see added tax benefits for qualifying children, from general tax deductions to claiming child care expenses. Claiming child care expenses gives working Canadian families the ability to lower their taxable income, making it important to understand what child care expenses are, the eligibility requirements, and how to claim the expenses.

What are Child Care Expenses?

Child care expenses are costs paid towards daycare, summary camps, and nanny services. These expenses are taken as a tax deduction when the tax return is filed. The current limitations are $8,000 for each child under 7 and $5,000 for each child between 7 and 16. In addition, The Canada Revenue Agency provides an $11,000 credit for each disabled child under 7 years old and $5,000 for each child ages 7 to 16 (Government of Canada). These amounts can significantly reduce your taxable income, putting more money back in your pocket at the end of the year.

Who is Eligible for the Child Care Expense?

There are a few different criteria that need to be met in order to claim child care expenses. To be eligible, you must be working, going to school, or a business owner. The child must also be living with you. If you have a nanny, they cannot be related to you or under the age of 18. Many working Canadian families will be eligible to take child care expenses; however, reach out to your accounting expert to confirm your eligibility.

What Qualifies as a Child Care Expense?

Qualifying child care expenses include most costs incurred when someone else watches your child. Caregivers, daycare, educational institutions, day camps, summer camps, boarding schools, and overnight camps are all qualifying child care expenses (Government of Canada). Among the list of excluded expenses includes medical and hospital care, clothing, and fees remitted to educational institutions for recreational costs. Any after school activity that there is a fee for is generally excluded. Understanding what qualifies as child care expenses will help you accurately keep track of the costs incurred.

How Do You Claim Child Care Expenses?

Claiming the child care expense deduction can be done on Form T778. This form is generally filed with your annual tax return and outlines all the qualifying expenses. In order to claim child care expenses, you need receipts supporting the costs paid. The receipt needs to show an identification number, the name of the organization or individual, a description of the service provided, and the amount paid. Keep in mind that carryforwards of child care expenses are not permitted as there is a use it or lose it rule.

Summary

Claiming child care expenses can be a great way to catch a tax break for child care costs that you are already paying. Navigating between unqualified and qualified expenses can be tricky, not to mention that filing Form T778 can get overwhelming. This is why working with a qualified accountant team, like Faber LLP, is recommended to properly claim the expenses and enjoy the tax benefits.

Sources

Government of Canada. “Line 21400 – Child care expenses.” Government of Canada, 18 January 2022, https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-21400-child-care-expenses.html. Accessed 17 April 2022.