Receiving a Childcare Tax Benefit

Cash Flow Management
Childcare Expenses
A taxpayer may be eligible to deduct certain child care expenses such as daycare or child care costs.

Parents should keep in mind that they may be eligible to receive a childcare tax benefit if they meet certain criteria. We know that 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 receive a tax credit. This is especially true if child care expenses are necessary in order for the parents to generate an income.

Qualifying for the Childcare Tax Benefit

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

  • Earn an income
  • Run your business
  • Attend school

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.

Childcare Tax Benefit
Parents may be eligible to receive a childcare tax benefit if they meet certain criteria.

What type of expenses would attract the childcare tax benefit?

  • 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 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
Example of Daycare 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 the childcare tax benefit, 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. The daycare tax deduction is a great way to generate extra cash flow.

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