The warm weather is upon us and soon school will be out. That means many parents will be making arrangements for child care and summer camp, which often come with a hefty price tag.
The bad news is that a number of credits and deductions that were available in previous years, including the Children’s Fitness Tax Credit and Children’s Art Tax Credit, no longer are.
The good news is that many parents are still able to claim a Child Care deduction for all or part of the eligible costs incurred, dollar for dollar, on their 2018 tax return, helping reduce your overall tax owing come filing season in 2019.
This is the same deduction that is available year-round for parents who incur childcare costs so that they are able to work, do research (for which a grant was received), run their business or go to school.
Eligibility for the Child Care Deduction
To be eligible for the Child Care Deduction, your child must be 15 years old or younger at sometime during the year. This means that you can claim a deduction for children that turn 16 in 2018. If you claim the disability amount for your child, there is no age limit so long as they are dependent on you and/or your spouse.
In addition, to claim the Child Care Deduction your expenses must be eligible. A list of eligible expenses can be found on the Canada Revenue Agency website, but common expenses include:
- After school care
- Day care and nursery schools
- Boarding school
- Overnight camp
- Day camp
- Sports schools
You can not claim a deduction for payments made to the mother or father of the child, someone claiming an amount for the child, or an individual who is related to you (excluding aunts, uncles, nieces and nephews) and under the age of 18.
Claiming the Child Care Deduction
To claim a deduction for incurred child care expenses, you must first determine how much you can claim. The child care deduction is restricted to a maximum amount, known as the basic limit. As such, the amount deducted from your income is the lesser of the three calculations, which are to follow. It is important to note that these calculations need to be done on a per child basis.
- 2/3 of the taxpayer’s net income for the year (where both parents work, the calculation is made using the lower income spouse's net income).
- Actual amount of eligible child care costs incurred in 2018.
- Basic Limit.
The basic limits for child care, excluding overnight camp and boarding school, are as follows:
Children born between 2002 and 2011 - $5,000
Children born between 2012 and 2018 - $8,000
Children born before 2018 or earlier for whom the disability amount is claimed - $11,000
The basic limits for overnight camp and boarding school are as follows:
Children born between 2002 and 2011 - $125 per week
Children born between 2012 and 2018 - $200 per week
Children born 2018 or earlier for whom the disability amount is claimed - $275 per week
Example
You and your spouse both work. You have an income of $70,000 a year and your spouse earns $30,000. You have three children. A five-year-old, a seven-year-old and a 15-year-old. In 2018, you paid $400 a month for after school child care for your five and seven-year-old for 10 months. You also paid $260 a week for four weeks of camp during the summer vacation for each child. Your 15-year-old does not receive after school care but does attend overnight camp for three weeks each summer at a cost of $300 per week.
The calculation for your deduction would be as follows:
1. 2/3 of the taxpayer’s net income for the year (where both parents work, the calculation is made using the lower income spouses’ net income):
5-year-old = $30,000 x 2 / 3 = 20,000
7-year-old = $30,000 x 2 / 3 = 20,000
15-year-old = $30,000 x 2 / 3 = 20,000
2. Actual amount of eligible child care costs incurred in 2018:
5-year-old = ($400 x 10) + ($260 x 4) = $5,040
7-year-old = ($400 x 10) + ($260 x 4) = $5,040
15-year-old = ($300 x 3) = $900
3. Basic Limit:
5-year-old = $8,000
7-year-old = $5,000
15-year-old = ($125 x 3) = $375
Based on the calculations, you are able to claim the basic limit of $375 for the 15-year-old (lower of $20,000, $900 and $375). Similarly, you can claim the basic limit of $5,000 for your seven-year-old (lower of $20,000, $5,040 and $5,000). For your five-year-old, you can claim the actual cost of $5,040 (lower of $20,000, $5,040 and $9,000).
For more information changes to child tax credits or to plan for the 2018 tax year, contact us today!
