After the birth of a child, some parents may opt not to return to work. For those that are in a financial position where that is attainable, power to you. For others, income might be tight and being a stay at home parent might not be an option. The latter group will probably have significantly more child care expenses.

In this article we will review Child Care Expenses from a financial planning and tax perspective. We will also touch on the Child Care Benefit.

Children are not a distraction from more important work. They are the most important work.

John Trainer, M.D.

If you are a parent of a dependent child, it may also be beneficial to read, Finance Tips for the Young Parent.

Child Care Expense Overview

Child care expenses consist of any amounts paid to have someone look after an eligible child so that the parent or primary care giver could do one of the following:

• Earn income from employment,
• Carry on a business either alone or as an active partner,
• Attend school under the conditions identified under the educational program, and
• Carry on research or similar work, for which you or the other person received a grant.

Children that are eligible for child care expenses must be dependent on you or your spouse/common-law partner, be under 16 years of age, and whose net income is less than $12,069 in 2019.

Note: age limit does not apply if the child is physically or mentally impaired.

If there are two adults in the household, the general rule is the child care expenses are applied against the taxpayer with the lower income. There are some exceptions to this, and you should consult your tax professional.

What Can You Claim?

Child care can take many different forms for different family units. Payments that you can claim include payments made to any of the following:

• Caregivers providing child care services,
• Day Nursery schools or daycare centers,
• Educational institutions, for the part of the fees that relate to child care services,
• Day camps, and day sports schools, and
• Boarding schools, overnight sports schools, or camps where lodging is involved.

The general rule states that the expenses must be incurred to allow the parent/guardian to work or attend school. Simply hiring a babysitter for the night, so you can go out, does not qualify.

Furthermore, the person providing the child care can not be a related person. This means anyone related through blood relationship, marriage, common-law partnership, or adoption. Interestingly enough a niece, nephew, aunt, or uncle is generally not considered a related person.

How Much Can Be Claimed?

The amount that can be deducted depends on the age of the child. For children under age 7, deductions are limited to $8,000 annually. For children older than 7 and up to age 16, deductions are limited to $5,000.

As noted earlier, for children with mental or physical impairments, different rules apply. For children who qualify for the disability tax credit, deductions are limited to $11,000.

Child care expenses do not have to be paid for each eligible child. For example, let’s assume a family had 4 kids; a 3-year old, a 13-year old, a 15-year old, and a mentally impaired 17-year-old. The 13 and 15-year-old probably do not require any child care. However, the 3-year-old and the 17-year old do.

In this scenario, the family would be eligible to claim up to $29,000, even if that is only for the care of the youngest and oldest child. The $29,000 is broken down in the following way: $8,000 for the 3-year old, $5,000 for the 13 and 15-year old, and $11,000 for the 17-year old.

However, the total amount that can be claimed is limited to 2/3 of the lower-income spouses’ earned income. No matter where you go for child care, make sure you are always getting a receipt.

Child Care Benefits

Child care benefits are a tax-free monthly payment administered by the Canada Revenue Agency (CRA). Its purpose is to help eligible families with the cost of raising children under age 18.

The amount the you are eligible to receive is dependent upon your adjusted net family income from the previous year. Eligibility is recalculated every year in July.

To be eligible for CCB you must be the primary caregiver for a child who is under 18. You must also be a resident of Canada for tax purposes. To find more criteria that get into more detail, click here.

The maximum amount of benefit that you can receive is $6,639 per year for children under age 6. For children between 6 and 17 years old, the max is $5,602 per year. To find out an estimate of how much you could receive, use this link: https://www.canada.ca/en/revenue-agency/services/child-family-benefits/child-family-benefits-calculator.html.

Sources:

https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-1-individuals/folio-3-family-unit-issues/income-tax-folio-s1-f3-c1-child-care-expense-deduction.html

What every parent needs to know about deducting child-care expenses come tax time