Child Care Expenses

Raising a child comes with many responsibilities, and child care can be a significant expense for working parents. The Canada Revenue Agency (CRA) allows parents to claim eligible child care expenses to help reduce their taxable income.

Who Can Claim Child Care Expenses?

You may be eligible to claim child care expenses if:
✅ You or your spouse/common-law partner earned income from employment, business, or received certain benefits (such as disability or education assistance).
✅ The expenses were incurred for the care of an eligible child under 16 years of age (or any age if the child has a disability).
✅ The care was provided by an eligible child care provider (not a parent or relative under 18).

What Expenses Can Be Claimed?

The following child care expenses are eligible for deduction:

• Daycare fees (licensed or unlicensed)
• Nannies and babysitters
• Nursery schools and preschools
• Before & after-school programs
• Day camps or summer camps (for care, not just recreational activities)
• Educational institutions that provide child care services
• Care for a child with disabilities (specialized programs and caregivers)

How Much Can Be Claimed?

The maximum amount you can claim per child is:

• $8,000 per child under age 7
• $5,000 per child aged 7 to 16
• $11,000 per child with a disability (eligible for the Disability Tax Credit)

The claim is generally made by the lower-income spouse unless they are unable to care for the child due to certain conditions (e.g., full-time education, disability).

Important Considerations

• Receipts are required from the child care provider, including their name, SIN (if an individual), and the amount paid.
• Expenses cannot be claimed if paid to a parent, common-law partner, or relative under 18.
• Child care expenses cannot be claimed if the costs were covered by an employer or government subsidy (unless included in taxable income).

Common Issues & Case Studies

Case Study 1: Separated Parents and Custody Considerations

Scenario:
John and Sarah are divorced and share 50/50 custody of their two children, Emma (5 years old) and Liam (8 years old).

John paid $4,000 in daycare fees while the children were in his care, while Sarah paid $5,000 for after-school programs during her custody period. John wants to claim the full $9,000 in child care expenses on his tax return.

CRA Rule & Solution:

• Only the parent who paid for the expenses and had custody during that period can claim the deduction.
• Since John paid $4,000 for child care while the children were with him, he can claim that amount.
• Sarah, who paid $5,000 during her custody period, can claim only that amount.
• Neither parent can claim the full $9,000.

📌 Example Claim Calculation:
John’s eligible claim: $4,000
Sarah’s eligible claim: $5,000

💡 Tip: Parents with joint custody should keep clear records of who pays for child care to avoid disputes with CRA.

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Case Study 2: Claiming Child Care Expenses on the Higher-Income Spouse

Scenario:
Lisa and Mark are married and both work full-time.

• Lisa earns $90,000/year
• Mark earns $45,000/year
• They have one child, Ava (4 years old), who attends daycare.
• Lisa paid $8,000 in daycare fees.

Lisa wants to claim the full $8,000 deduction because she paid for the expenses.

CRA Rule & Solution:

• The lower-income spouse (Mark) must claim child care expenses first, even if Lisa paid for them.
• The maximum claim per child under 7 years old is $8,000, so Mark can claim the full amount.
• Lisa cannot claim the expense because Mark has the lower income.

📌 Example Claim Calculation:
Mark claims: $8,000 (reducing his taxable income from $45,000 to $37,000).

💡 Tip: If Mark were in full-time education or had a disability, Lisa could claim the expenses instead.

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Case Study 3: Earned Income and Owner-Managers Paying Dividends

Scenario:
Raj owns a small business and pays himself $50,000/year in dividends, instead of a salary.

• Raj and his spouse, Priya, have two children (ages 3 and 6).
• They paid $12,000 in child care expenses for daycare and after-school programs.
• Raj wants to claim the deduction.

CRA Rule & Solution:

• Dividends do not count as “earned income” for child care expense claims.
• To qualify, Raj must pay himself a salary instead of dividends.
• If Priya has earned income, she may be able to claim the expenses instead.

📌 Example Solution:
If Raj switches to a salary of $50,000, he can claim child care expenses. Otherwise, Priya must claim them if she qualifies.

💡 Tip: Business owners should plan their income structure (salary vs. dividends) carefully to avoid losing tax deductions.

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Case Study 4: Disallowed Expenses and CRA Disputes

Scenario:
Emily is a single mother who works full-time. She hired her neighbor’s 17-year-old son to babysit her 5-year-old daughter after school. She paid him $3,000 over the year and tried to claim it as a child care expense.

CRA Rule & Solution:

• Child care expenses paid to a relative under 18 years old are not eligible.
• CRA disallowed Emily’s claim and reduced her tax refund.

📌 Example CRA Disallowance Calculation:
Emily’s expected refund before disallowance: $2,500
CRA denied her $3,000 claim → Refund reduced to $1,500

💡 Tip: Always hire eligible caregivers (licensed daycare, nannies, or adults over 18) and keep receipts for CRA verification.

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Key Takeaways

✔ Only the parent who pays for child care and has custody can claim expenses.
✔ The lower-income spouse must claim child care expenses, unless an exception applies.
✔ Business owners should take a salary instead of dividends to qualify for claims.
✔ Payments to relatives under 18 do not qualify.

Need Help? Contact ZAP Accounting!

Understanding tax deductions for child care expenses can help you maximize your refund and reduce your taxable income. If you need expert advice, ZAP Accounting is here to assist! Contact us at +1 236 300 3322 for professional guidance on claiming child care expenses.

Disclaimer

This article provides general information about child care expenses based on current tax laws. Tax regulations are subject to change, and this article may not reflect the latest updates. The information provided may contain errors or omissions. Before making any tax-related decisions, please consult the CRA website or seek professional advice from a ZAP Accounting expert to ensure accuracy and compliance.