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Understanding Claims for Your Child Care Costs

It is not uncommon for some adults who are the parents of children decide they would like to return to the work force or even perhaps go back to school.   Most realize that it does cost money to go to work or even to school when they have the care of their children to consider.   There are travel expenses, and work related costs and one of the major expenses that those in this situation face is child care.

It is good planning to really give some thought as to what the costs incurred for going back to work or school will do to your tax obligations, and whether either of these endeavors are going to be financially feasible.

We have often talked about the tax benefits of non refundable tax credits, but when it comes to child care costs, these are not a tax credit but are entered on your personal tax return as a deduction from income.   The big difference here is that when you look at tax credits that are non refunded they are always at the lowest rate, but when you can reduce your income then your tax savings is at your marginal tax rate.

Claiming child care costs does not come without some regulations and eligibility.   Usually this expense is to be claimed by the parent who has the lower net income in respect to their tax filing.   Different rules apply for parents who are separated and share the custody.   There are other exceptions to the parent with the lower net income having to claim this expense, and this is why it is so important to totally understand the CRA regulations.

Something else that is not realized is that there are limits as to the amounts that can be claimed for the childcare expense.   Some people believe that they can claim whatever amount they have had to pay for the child care service, which is not the case.   There is some criteria that is in place regarding the claim amount and this may factor in disability amounts, as well as age of the child.

With all the variations in the rules and regulations of the CRA regarding childcare it would be wise to speak to a qualified tax accountant to see what type of potential tax position going back to work or school could put you in.   This type of tax planning can be most beneficial.

 

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Sam Seidman, CPA, CA, LPA
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Toronto, Ontario
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Email: sam@torontoaccountant.ca

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