Commonly Missed Deductions Part 2: Child Care Expenses
Are you paying for child care expenses for children in your care? If you answered yes, be sure to keep all your receipts because you can write-off these child care expenses on your tax return.
The government allows this deduction to give a tax break to individuals who pay for child care expenses so they can earn employment or self employment income.
There are three criteria that have to be met in order to claim child care expenses:
- Eligible Child must be:
- Either under 16 or disabled
- Either your or your spouse/common law partner’s child or a child that is dependent on you or your spouse/common law partner for support and whose income does not exceed the basic personal amount ($11,635 in 2017)
- Child Care expenses must be to enable the taxpayer to perform the undertaking of specific activities, which includes at least one of the following:
- Working as an employee
- Self employed in an unincorporated business
- Enrolled in a full-time or part-time educational program
- Provider of child care services must be from one the following:
- Eligible child care provider (anyone other than the child’s father, mother, supporting person, person who has claimed the child on their tax return, and a relative who is under 18)
- Day nursery or day-care centre
- Day camp or day sports school
- Boarding School or camp
The maximum amount of child care expenses that can be claimed depends on the age and ability of the child. If the child is:
|Child Criteria||Maximum Claim|
|Between seven and fifteen||$5,000.00|
|Sixteen and older and disabled||$5,000.00|
Generally speaking, when the parents of a child are married or in a common law relationship only the lower income partner can claim child care expenses but they are several exceptions. The higher income partner can claim child care expenses if the lower income partner is:
- Enrolled in a full or part time educational program
- Confined to a prison for more than 2 weeks
If the parents of a child are divorced or separated and both parents have joint custody, the parent who pays the child care expenses can claim the child care expenses on their return.
Child care expenses claimed cannot exceed two-third of your earned income for that year. Earned income includes:
- Salaries and wages
- Disability pension
- Employment benefits and employee stock option
- Income from an unincorporated business
Let me give an example. Jane and John are a married couple and have one child who is 5 years old. They pay $10,000 for day care for this child. John earns $100,000 per year and Jane earns $50,000 per year. Only Jane is able to claim child care expenses because she has the lower income. The maximum claim she can make is $8,000 because their child is under seven. This is less than two thirds of her earned income (50,000 x (2/3) =$33,333) therefore $8,000 is the allowable claim.
If you have any questions or would like us to help you prepare your tax return please contact our office.
Shahir Makhani, CPA
Reference: Folio s1-f3-c1