You can often deduct child care expenses that enable you to carry on your employment or business, or to attend school. The types of expenses that qualify include those for baby-sitting, day care, nanny services, and certain boarding schools and camps. Your children must be under the age of 16 at some time during the year, otherwise both dependent upon you and having a mental or physical infirmity.
There are various limitations on the deduction. The more significant ones are described below:
Three general limits
First, there are three monetary limitations. For each taxation year, you can deduct the least of the following three amounts:
- Your actual child care expenses incurred for the year.
- The total of the “annual child care expense amounts” for the year. These amounts are $11,000 for a disabled child eligible for the disability tax credit, $8,000 for each child under the age of 7 at the end of the year, and $5,000 for each other eligible child. Note, however, that this is a total limit for all of your children; you are not limited to the dollar amount for each child. Thus, if you spend nothing on child-care for your 14-year-old and $13,000 for your 5-year-old, your dollar limit is still $13,000.
- 2/3 of your “earned income” for the year.
In terms of your actual child care expenses, there is a further limit if the expenses are incurred for a boarding school or camp (say, an overnight summer camp). The maximum amounts that qualify are 1/40th of the annual child care expense amount per child, per week, in the year that the child attends the camp. For example, if your 9-year old child attends an overnight summer camp for 4 months and you paid $2,000 for the camp, only 4 x (1/40 x $5,000), or $500, would qualify as a child care expense under item 1) above.
Your “earned income” includes gross employment income, net business income, research grants, and a disability pension received under the Canada Pension Plan or Quebec Pension Plan.
Lower-income spouse must normally claim
This is often the most significant limitation. If you are married or in a common-law relationship, the lower-income spouse (common-law partner) must normally claim the deduction. The higher-income spouse can deduct no expenses (except in the limited circumstances listed under the next heading).
As an extreme example, if the lower-income spouse stays at home and has no income for the year, his or her earned income will be nil, meaning that no deduction can be claimed at all!
Exception where higher-income spouse gets a claim
There are three scenarios under which the higher-income spouse for the year can claim a limited deduction in a taxation year. The scenarios are:
- The lower-income spouse attended school in the year;
- The lower-income spouse was incapable of caring for the children because of an infirmity, and confinement to a wheel-chair, or a hospital or similar institution; or
- The lower income-spouse was in prison during the year.
Where one of the scenarios existed during the year, the higher-income spouse can claim a deduction using the three monetary limits described earlier, along with a fourth limitation. The fourth limitation is 1/40th of the total annual child care expense amounts for the year multiplied by the number of weeks that the lower-income spouse is in full-time school, infirm and confined, or in prison, as the case may be. (If the lower-income spouse is attending school part-time, the number of months in school is used rather than the number of weeks).
The lower-income spouse can still claim a deduction using the three monetary limits, but net of the amount claimed by the higher-income spouse.
John and Mary are married. Mary’s earned income for the year is $90,000. John’s earned income is $30,000. John attended university on a full-time basis for 26 weeks during the year.
They have two healthy children, aged 5 and 8. Mary and John incurred $16,000 in child care expenses for the 5-year-old for the year.
Mary’s deduction: least of:
- $16,000 actual expenses;
- Total annual child care amounts of $8,000 + $5,000 = $13,000;
- 2/3 of her earned income, or $60,000; and
- 26 x 1/40 x $13,000 = $8,450.
Therefore, Mary can deduct $8,450.
John’s deduction: least of:
- $16,000 (same);
- $13,000 (same); and
- 2/3 of $30,000, or $10,000
But net of Mary’s claim.
So John’s deduction is $10,000 minus the $8,450 claimed by Mary, or $1,550.