Your Tax Implications for Home Day Care Services
It may be that you are helping a few neighbors or friends out by providing them with daycare, and what you may not realize is that by doing so, you could be placing yourself in a self employment position that has specific tax implications.
Don’t be surprised if at the end of the year the individuals paying your for this service ask you for a receipt for the payments they have made to you. They are doing this so they can potentially claim this expense on their tax return.
There are specific rules that the Canada tax regulators have in place to determine if you should be classified as a self employed individual. It will depend on the number of hours that you are providing day care services. The place where you do this, such as in your home or in the children’s home, and also what types of materials you use to perform these duties are all taken into account.
While this may seem fairly simple it could be that you are classed as an employee rather than being self employed. What would determine this is if the parents dictate the working hours, the type of work to be carried out during your daycare services, and they take on the role of supervising this.
These two criteria can make it really difficult to determine which category you fall into, but it is important to ascertain this because they have entirely different tax implications. You may want to use a good quality tax accountant for your personal taxes who will know by the information that you provide him with which tax situation is applicable to you and he will complete your taxes accordingly.
There could even be a third situation where you only look after various children occasionally as needed and there is no set schedule.
So how do these three circumstances affect you from a tax point of view?
Self-employed day care:
Here you would be allowed to deduct some of the expenses that you incur as a result of you carrying out your day care duties.
Employee day care:
In this circumstance you are not allowed to deduct expenses. The parents who are classed as your employee may have employer tax obligations like withholding tax, CPP and EI from your pay.
Occasional day care:
In this case you would simply declare the money you make as a babysitter under other income.
Be sure to call Sam Seidman at Toronto Accountant as he offers great service and reasonable rates for personal income filing.