Canadian Child Care Expenses Deductions & Criteria
The Canada Child Care Expenses Deduction is a tax deduction that can be claimed by either the parent or grandparent who provides care to a child to work or go to school. The credit is calculated based on the amount of money spent on child care, up to $8,000 per year. The qualifying individual must be:
- a minor
- a dependent
- an eligible dependant with a disability (as specified by the Canadian government)
- another person who is at least 16 years old and has a disability that prevents them from being able to care for themselves
- a child with physical or mental disability, regardless of their age, allowing a basic limit of $11,000
The deduction is calculated based on the total amount of money spent on child care, up to $8,000 per year.
What Child Care Expenses can be claimed?
The Canadian government introduced the child care expense deduction to help parents with the cost of raising their children. It is a type of deduction that helps families drastically reduce the tax owed. The deduction is available to both single and joint filers.
A taxpayer who supports an eligible child or children may claim for the following payments they incur:
- Caregivers who provide care services for child
- Daycare centers and other day nursery schools
- City and other organizations organize day camps, including day sports schools. Sports studies are NOT included as the intention is to subsidize the care given to the child
- Camps that organize overnight stays, including sports schools
- Boarding schools for children
- Tuition portion charged by private schools and educational institutions
What amounts are not considered for a deduction on Form T778
The form T778 covers child care expenses and does not include any of the following:
- Care provided for medical well-being and hospitalization
- General expenses, including transportation and clothing
- Tuition and sports fees are collected for standard educational costs by educational institutions, including private schools
- Fees related to recreational and leisure activities and sports education
Who is eligible to claim child care costs?
Generally, the child care expenses can be claimed by the parent or grandparent taking care of the child who is below 16 years of age. You can file a T778 form to report the expenses incurred while caring for the child. If you are a couple, the partner with a lower income generally files the T778 form. If the parents share custody or are legally separated, both of them are eligible to claim a part of the child care expenses they paid.
Partners with higher incomes are allowed to file a T778 tax form. But the CRA requires them to fill out Parts C and D of the T778 if separated for over 90 days before they reconcile. If only one parent makes the child’s payments, they will need to fill in Parts A and B. And part D may also need to be filed.
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Who qualifies as an eligible child as per the T778 tax form?
You can claim child care expenses only for an eligible child. The eligible child can be one of the following:
- Your child or your spouse’s or common-law partner’s child
- A child who is dependent on you, your spouse, or common-law partner whose income was less than $13,809 in 2021
Although the age limit is under 16 years, the same does not apply if the child suffers from a mental or physical impairment.
What Does the T778 Tax Form Include?
The T778 Tax form is a form that includes information on the income tax deductions that a taxpayer has claimed. T778 tax form has four main parts, as follows:
1) Part A – Details of the total child care expenses incurred by the taxpayer:
In this part of the T778 form, you need to provide the sum total of all child care related expenses you paid for during the tax year. The deductions you claim should be included in the list of eligible expenses, as already discussed.
You must fill out the eligible child’s name, address, and date of birth. The child’s Social Identification Number (SIN) also needs to be entered. Enter the expenses incurred as part of care expenses for the child. You will need to enter the number of days the child spent in their boarding or overnight schools or camps.
2) Part B – Basic Limit of child care expenses:
The nine lines in part B of form T778 include the number of eligible children under your care, your annual income, and acceptable deductions. You will need to delve into details of your allowable deductions for your income to enumerate the sections in this part.
3) Part C – Individuals filing T778 expenses claims despite of higher net incomes:
Typically, the T778 form is filled out by the parent who has a lower income. However, if you are a parent with a higher income and wish to claim the child care expenses while filing taxes, you must fill part C. The situations that make you eligible to file T778 are:
- another parent is in school
- another parent is mentally or physically impaired
- another parent is in prison
- another parent does not live with you and is not paying any part of child care expenses
4) Part D – For individuals enrolled in an educational program:
If your situation is unique, you are eligible to fill in the details in this part of the T778 form:
- You are enrolled in an educational program while you bear child care expenses
- You have a higher income and are enrolled in an educational institution. You will fill Part C and Part D
How much of a tax benefit will you get from a child care expense?
The Canada Revenue Agency provides a deduction for child care expenses, also referred to as the Child Care Expense Deduction. The maximum amount of this deduction is $7,000 per year. This deduction allows parents to deduct up to a certain amount of their child care expenses from their taxable income. There are limitations on how much can be deducted depending on the province you live in and your family’s income level. Depending on the following situations:
- $8,000 if the chilis d 6 years old or younger
- $5,000 if the child is 7 years to 16 years old
- If the child is older than 16 years and is infirmed, leading to the inability to claim disability, you can claim a deduction of $5,000
- Regardless of your child’s age, you can claim a deduction of $11,000 if the child is physically or mentally impaired.
As you take care of your child, you need not worry about tax-related issues. It is advisable to get expert guidance to claim the maximum eligible deduction via form T778.
U.S. Child Tax Credit Refund
For those Canadian families that are dual citizens of the United States, they can also claim the US Child Tax Credit Refund.
There are criteria to meet, such as each child being a US citizen and having their own US Social Security Number and being under 17 years old in the year of claim.
US parents need to earn less than US$200,000 each per year too.
The refundable portion of the credit for 2022 is US$1,400 per qualifying child, and that will increase to $1,600 for US tax year 2023.