These days, it’s so common for families to have two working parents – either by choice or out of necessity. But it’s a struggle to balance two working parents’ schedules with childcare needs. The government helps by allowing a childcare expenses tax deduction so you can work, carry on a business, attend school or do grant-funded research. Of course, it comes with a lot of rules.
For two-parent families (married or common law) childcare expenses can only normally be claimed by the lower income-earning spouse. Single parents can deduct childcare expenses from their own income. In order to make a claim for your child, your spouse’s child, or a dependent, that person’s net income in 2011 must be less than $10,527.
There are circumstances where the higher income spouse can make the claim. If one spouse is disabled, in prison, in hospital, confined to a bed or wheelchair for at least two weeks, attending full-time high school or post secondary school or if the spouses have separated, then the higher income spouse can claim the deduction. This lasts only as long as the situation continues.
Let’s talk dollars. The amount you can claim depends on things like the child’s age and whether or not the child has a disability. There’s an umbrella limitation—no more than two thirds of the earned income of the spouse making the claim. “Earned income” includes salaries, business income, disability pension amounts from the Canada pension plan, research grants, social assistance, training allowances paid under the National Training Act, and apprenticeship grants.
For kids under age seven you can claim up to $7000 of expenses paid. If they’re between seven and 16 you can claim $4000. For children over age 16 who are infirm but not eligible for the disability tax credit, you can claim $4000 and if they are eligible, you can claim $10,000.
If you’re paying a boarding school or overnight camp, there are limits for each week the child attends. The weekly max is $175 per child under seven, $100 per child ages 7 to 16 (or over 16, infirm but not eligible for the disability tax credit), and $250 per child eligible for the disability tax credit.
Payments can be made to anyone living in Canada for services given in Canada…except the child’s parents, a relative under 18, or anyone else the parents claim a dependent deduction for.
There are still more chances to save. Family members over 18 with little or no income can provide child care services. This includes grandparents (but be careful not to impact any old-age security supplements), children over 18 who attend school and therefore have little income, nieces and nephews and others.
With appropriate year end tax planning and organization there can be significant tax help for families where both parents must or choose to work.