Subject to monetary limits (discussed below) child care expenses are deductible in computing your income if they enable you to:
- be employed;
- carry on business;
- carry on research for which you received a grant; or
- attend post-secondary or secondary school.
The types of child care expenses that qualify for the deduction include those paid for baby-sitting, day care services, a nursery, or a nanny or other child-care provider. However, they do not include amounts paid to the child’s mother or father for the services, to a related minor child, or to a person for whom you claimed a personal credit amount.
They do not include amounts paid for medical or hospital care, clothing, transportation or education.
Otherwise, the qualifying expenses can include amounts paid to adult relatives such as aunts, uncles, grandparents, and so on. They also include amounts paid to non-related minors, such as your 17-year old neighbour who is the baby-sitter.
They also include amounts paid for a boarding school or camp, but these amounts are subject to a separate monetary restriction noted below.
If the child care is provided by an individual, you will need to obtain a receipt showing the individual’s Social Insurance Number, and provide it to the CRA on request. (This generally ensures that the individual will be required to include the amounts in income.)
There are two general monetary limits to the deduction of your child care expenses paid in a year. Normally, you can deduct only the lesser of the following amounts for the year:
- ⅔ of your “earned income” for the year; and
- the total annual dollar limits per child; as of 2015 these amounts are $8,000 per child under 7 years of age at the end of the year, $5,000 per child 7 to 16 years of age, and $11,000 per disabled child (these amounts were each increased by $1,000 over the 2014 amounts).
For this purpose, your “earned income” for the year includes your employment income (including taxable benefits, allowances, and employee stock option benefits), net business income, the taxable amount of fellowships and research grants, and any disability pension payments received under the Canada Pension Plan or Quebec Pension Plan.
Note that the child care expenses do not have to be paid for the children that generate the dollar limits. For example, you might pay nothing for child care for a 15 year old, yet your dollar limit includes $5,000 because you have that child, even if all your child care is paid for a six year old.
As noted, amounts paid for boarding schools and camps can qualify as child care expenses. However, they are limited to the following amounts (as of 2015):
- Children under 7 at the end of the year: $200 per week of attendance
- Children 7 through 16: $125 per week
- Disabled children: $275 per week
Furthermore, for married or common-law couples, the individual with the lowest income for the year must normally claim the deduction and the higher income spouse cannot claim a deduction (subject to the section below). Thus, for example, if one spouse stays at home and has no income while the other spouse works, there will be no deduction allowed because the higher-income spouse will not qualify, and ⅔ of the stay-at-home spouse’s earned income will be nil.
Note that expenses that cannot be deducted in one year because of the monetary limitation cannot be carried forward to other years.
When the higher income spouse can claim the deduction
The higher income spouse or common-law partner can claim a deduction for child care expenses in a year in the following circumstances only:
- The lower income spouse attended school in the year;
- The lower income spouse was certified by a medical doctor as incapable of caring for children because of a mental or physical infirmity that confined the spouse to a bed or wheelchair or a hospital for at least 2 weeks, or incapable of caring for children for a long, continuous and indefinite period because of mental or physical infirmity; or
- The lower income spouse was in a prison or similar institution for at least 2 weeks in the year.
In either of these cases, the higher income spouse’s deduction is limited to the lesser of the two general monetary limits discussed above (i.e. ⅔ of income and the annual child care amounts). However, the deduction is further limited to a maximum amount per week in which the other spouse attended school, was incapable owing to the infirmity, or in prison, as the case may be. Under this last limit, the maximum amount per week that can be deducted is $200 per child under the age of 7 at the end of the year, $125 per child age 7 through 16, and $275 per disabled child. (If the lower income spouse attended school on a part-time basis, these dollar amounts apply on a per month basis, rather than on a per week basis.)
Any remaining child care expenses can be claimed by the lower income spouse, subject to the monetary limits for that spouse, discussed earlier.
Harry and Sarah are married and have two healthy children aged 4 and 9 years. In 2015, Sarah had $120,000 of earned income and Harry had $30,000 of earned income. During the year, Harry attended university on a full-time basis for 13 weeks.
They incurred $18,000 of qualifying child care expenses for the year.
Since Harry attended school full-time for 13 weeks, Sarah can claim a maximum deduction of the least of:
- ⅔ of her $120,000 earned income = $80,000;
- $8,000 + $5,000 annual child care amounts = $13,000; and
- 13 weeks that Harry was in school x ($200 + $125) = $4,225
Therefore, Sarah can deduct $4,225.
Harry can then claim a deduction equal to the least of:
- ⅔ of his $30,000 earned income = $10,000; and
- annual child care amounts of $13,000;
which is $10,000, minus the $4,225 claimed by Sarah, so Harry can deduct $5,775.