Child Care Tax Deduction

When it comes to child care tax deduction, parents need to be mindful of what would qualify. We know that raising a child is expensive and can take a toll on your finances if you’re not prepared. Child care is occasionally one of the biggest expense parents face after their rent or mortgage. The average monthly cost of daycare in Toronto is $1,675, up to 10x more than the cost in Montreal. Parents need to be aware that they may be eligible to deduct child care expenses and free up their cash flow. This is especially true if child care expenses are necessary in order for the parents to generate an income.

Qualifying for Deduction

Childcare expenses can be deducted if you or your spouse paid to have someone take care of your child in order to:

Be aware that “child” means anyone under the age of 16 with a net income of $12,069 or less. If the child suffers from mental or physical conditions then there is no age limit.

What constitutes as an expense you may ask?

  • Childcare services provided by caregivers
  • Childcare services provided by educational institutions
  • Day nursery schools
  • Daycare centers
  • Day camps and day sports school providing care for the children
  • Boarding schools or camps where accommodation is provided

Amount of Child Care Tax Deduction

As of 2020, parents are able to deduct up to

  • $8,000 for children under age of 7
  • $5,000 for children aged 7 through 16
  • $11,000 for children who are receiving the disability tax credit

The deduction must be claimed by the lower income spouse and is limited to the lower of:

  • 2/3 of their earned income
  • Total Cost of Daycare
Child Care Tax Deduction
You may be eligible to deduct eligible child care expenses that you accrue during the course of the year.
Example of Child Care Tax Cost Deduction
Steve and Jennifer paid $10,000 in eligible child care expenses during the year for their three year old daughter. Steve's income for the year was $45,000 while Jennifer earned $42,000. To claim the tax deduction, Jennifer would  have to make the  claim as her income is lower than Steve. Her deduction is limited to the lower of 2/3 of her income or total cost of daycare. Her limit is $27,972 ($42,000 x 66.6 = $27,972) and total cost of daycare is $10,000. 

However, as their daughter is under 7, the maximum deduction that they can claim is $8,000. No deduction can be claimed for the extra $2,000.

In certain situations, the higher income spouse may claim the deduction if the lower income spouse is:

  • Is attending school
  • Is in jail
  • Is in the hospital
  • Incapable due to mental or physical conditions

Filing the Deduction

To claim a child care tax deduction, you would have to complete form T778 Child Care Expenses Deduction. Make sure that during the year, you keep all the receipts showing proof of payment. Receipts aren’t filed with the applicable forms but CRA may ask to see the receipts as proof.