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Claiming Child Care Expenses – Tax Benefits and Tips

Key takeaways:

  • Parents that are working or in school can claim expenses incurred in the care of their children
  • Deductible expenses can vary from nanny services, to day camp, to boarding schools, to advertising for these supporting services
  • There are limits set by the CRA for how much parents can claim
  • All tax deductions must be made by the parent in the lower income bracket
  • Speak to an expert accountant to find out what you can claim and what documents/receipts you need to submit with your claims

While the pandemic drastically changed how many parents balance work and family life, child care has always been a necessity for working parents.

The good news is that child care expenses can be deducted from income if parents incur these expenses in the process of earning income from employment or business. If you are working during the day and need child care services you are entitled to a deduction for these expenses, which can lower your net income and reduce the amount of taxes you are required to pay.

In this article, we’ll go over the different types of eligible expenses, general limitations of child care deductibles, and some tax benefits.

Which child care expenses can I claim?

There are many types of childcare services that parents can claim. These include:

  • Childcare services provided by caregivers (including babysitters and nannies);
  • Nursery schools and daycare centres;
  • Childcare services provided by educational institutions (only the part of your fees related to childcare can be claimed);
  • Day camps and day sports schools where the primary goal of the camp is to care for children (an institution offering a sports study program is not a sports school); or
  • Boarding schools (excluding the amount relating to education), overnight sports schools, or camps where accommodation is involved.

Which child care expenses can I NOT claim?

Generally, the expenses that parents can’t claim are related to the provider of that service. For example, if your relative provided babysitting services but they are under the age of 16, that expense would not be eligible for a tax deduction. If they were over 18 years old, you can deduct it once you’ve provided the supporting documents.

If child care services were provided by the parent of the child, or the parent’s spouse (e.g. a stepfather), those would not be eligible for tax deductions either.

Relationships that may not qualify include by blood, marriage or common-law partnership, or adoption. For example, your brother, sister, brother-in-law, sister-in-law are related to you; your niece, nephew, uncle, and aunt aren’t.

How do I know if I’m eligible for child care deductions?

While the list of deductions is quite inclusive, there are certain considerations to keep in mind. The following are some eligibility criteria set by the Canada Revenue Agency that need to be met to claim tax deductions from child care services.

  1. The deduction must be made to the parent with the lower income unless that parent is enrolled in part-time or full-time studies.
  2. The child must live with you.
  3. You must be working, going to school or running a business.
  4. The child must be under 16 years old in the year of the deduction (or turned 16 years old that same year)
  5. Nanny or childcare services aren’t provided by a relative under the age of 18

How much can I claim?

The value of the deduction can vary significantly, from $0 to $8,000 per child, based on their age.

For every child under the age of 7 at the end of the year, parents can claim up to $8,000, and for every child between the ages of 7 and 16 years, parents can claim up to $5,000.

Further, if a child is disabled, or qualified for the disability tax credit, parents can claim up to $11,000 regardless of the age of that child. For disabled, dependent children that do not qualify for the disability tax credit and are over the age of 16, parents can claim up to $5,000.

That can add up to a lot of tax savings if you work with an expert accountant to claim all your eligible expenses, however there are limits to the total value deducted, which generally cannot exceed two thirds of the earned income of the parent that is claiming the deduction.

The rates for child care expenses deductions are outlined in the CRA Form T778, which also further explains claiming these expenses. It’s always best to speak to a professional to understand what you may be entitled to and where your limits exist.

FShad CPA Professional Corporation has a team of expert accountants that can assist in identifying the different tax deductions from your child care expenses, the value of those deductions, and any accompanying documents or receipts that you may need to submit.

Contact Us

Book a consultation today and get started with our team of expert accountants!

FShad CPA Professional Corporation

Call us at (844) 982-4700 or send us an email to info@shadcpa.ca

3850 Steeles Avenue West, Unit 10 – Suite 203.

Woodbridge, ON, L4L 4Y6.

 

This publication is produced by FShad CPA Professional Corporation as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors. Your use of this document is at your own risk.