Koroll & Company Blog

The good news is that, while limited, summer camps are back this year. The bad news is … so is the cost. Fortunately, there are tax deductions to help offset the cost of camp and care for children this summer (and all year round). 

When it comes to child care expenses, costs can be deducted dollar-for-dollar, which means that you won’t have to pay tax on any income used to pay for camp or child care. There are, however, some eligibility criteria that must be met. 

What eligibility criteria do I need to meet to receive child care expense deductions?

Generally, the expenses must be incurred so that parents can work or attend school but in 2021, you can also deduct these expenses if you received taxable pandemic benefits or employment insurance during the year. 

Fees charged by most licensed organizations are eligible including nursery schools, day cares, camps, sports schools and boarding schools. Educational institutions that charge fees related to child care are also eligible. 

If you’re paying an individual, there are some rules to remember. Specifically, the individual can’t be a parent, a spouse or common law partner of the parent, older sibling under 18 or another person directly related to you (i.e. child or sibling related by blood, marriage or common law relationship). Aunts, uncles, nieces, and nephews are eligible. 

You must also have a receipt from the organization or a receipt and social insurance number from an individual who provided service. 

When determining the amount of your deduction for child care expenses, you have to use the least of 3 numbers. 

1. 2/3 of the net income in 2021 (for couples, you must use the lower income spouse’s net income).
2. Actual amount paid for eligible child care.
3. The basic limit for each child.

Day Care Limits 

1. $5,000 for each child born between 2004 and 2013.
2. $8,000 for each child born after 2014.
3. $11,000 for each child born before 2021 who you claim the disability amount for.

Overnight Care Limits 

1. $125 per week for each child born between 2004 and 2013.
2. $200 per week for each child born after 2014.
3. $275 per week for each child born before 2021 who you claim the disability amount for.

In most situations, child care expenses must be claimed by the lower income spouse in two parent families. However, there are some situations where the higher income spouse can claim some or all the expenses. 

1. The lower income spouse was attending school full time or part time. 
2. Physical or mental impairment made the lower income spouse incapable of caring for the children. This includes being confined to a bed or wheelchair for 2+ weeks, being in the hospital or another similar situation. 
3. The lower income spouse was in prison or a similar facility.
4. You and your spouse were living separate and apart for at least 90 days but reconciled before March 1 of the following year. 

Example 

You and your spouse both work. You have an income of $70,000 a year and your spouse earns $30,000. You have 3 children. A 5-year-old, a 7-year-old and a 15-year-old. 

In 2021, you will incur $400 a month for child care for your 5 and 7-year-old for 10 months. You’ll also incur $260 a week for 4 weeks of camp during the summer for each child. 

Your 15-year-old does not receive after school care but does attend overnight camp for 3 weeks each summer at a cost of $300 per week. 

The calculation for your deduction would be as follows. 

$30,000 x 2 / 3 = 20,000

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

5-year-old = $8,000

7-year-old = $5,000

15-year-old = ($125 x 3) = $375

Based on the calculations, you can claim the basic limit of $375 (lower of $900 and $375) for the 15-year-old. Similarly, you can claim the basic limit of $5,000 for your 7-year-old (lower of $5,040 and $5,000). For your 5-year-old, you can claim the actual cost of $5,040 (lower of $5,040 and $9,000). Because the total of all the expenses is below $20,000 you are not limited to 2/3 of your spouse's income. 

Do you want to learn more about how this works? Contact Koroll & Company today. We’d love to help.