With the worst days of the pandemic behind us, more and more Canadian families have returned to their usual schedule, with kids back in attendance at school and parents back at work at the office, on either a full-time or a part-time basis. While a return to the normal routine is likely welcome, the need to go to the office for at least part of the week means that parents must make arrangements for summer child care.
Parents needing to arrange such care don’t lack for options. There are an almost limitless number of choices, but what each of those choices has in common is a price tag – sometimes a steep one. Some options, like day camps provided by the local recreation authority or municipality, can be relatively inexpensive, while the cost of others, like elite-level residential sports or arts camps, can run to the thousands of dollars.
The good news for families which incur such expenditures is that in many cases a deduction for part or all of the costs incurred can be claimed on the tax return for the year. And, since eligible expenditures can be deducted from income on a dollar-for-dollar basis, that means that income used to pay eligible child care expenses is income which is effectively not subject to income tax. That benefit is provided by our tax system through the general deduction provided for child care costs. The general rule for the deduction (which is not specific to summer child care or summer camp costs but is available for qualifying child care expenses throughout the year) is that parents who must incur child care costs in order to work (whether in employment or self-employment), or in some cases to attend school, can deduct those costs from income, within specified limits
The amount of any available child care deduction is calculated on Form T778, and that calculation can seem forbiddingly complex. However, at the end of the day, the amount of child care expenses which can be deducted is simply the least of three figures, and only one of those figures requires a calculation. The steps involved in determining the amount of available child care expense deduction are as follows.
First, the amount of any deduction for child care expenses is limited to two-thirds of the taxpayer’s net income for the year. The income figure used to calculate the two-thirds figure is, generally, the amount shown on Line 23600 of the annual tax return. Where the family incurring child care expenses is a two-income family, it is the spouse with the lower net income who must make the claim and consequently it is his or her net income which is used to provide that two-thirds of income figure.
The second figure to be determined is the amount actually paid for eligible child care costs during the year. While virtually any licenced child care arrangement will qualify, some more informal arrangements may not. Specifically, no deduction is available for amounts paid to most family members to provide child care. So, it’s not possible for a working spouse to pay the stay-at-home parent to provide child care, nor is it possible to pay an older sibling who is under the age of 18 to provide such services, and to claim a deduction for those expenses incurred. As well, where a claim is made for a deduction for child care expenses on the annual return, the claimant must obtain (and be prepared to provide to the tax authorities) the social insurance number of the individual providing the care as well as a receipt showing the amounts paid, whether to an individual or an organization.
The third figure to be determined is the one which requires some calculation. Basically, the rules governing the deduction of child care expense impose a maximum deduction per child per year (referred to as the “basic limit”), with that basic limit dependent on the age of the particular child. As well, where expenses are incurred for overnight camps or boarding schools, the amount deductible for such costs is similarly capped.
For 2023, the following overall limits apply:
- $5,000 in costs per year for a child who was born in 2007 to 2016;
- $8,000 in costs per year for a child who was born after 2016;
- $11,000 in costs per year for a child who was born in 2023 or earlier, but for whom the disability amount can be claimed.
Similar restrictions are placed on the amount of costs which can be deducted for overnight camp or boarding school fees, and those are as follows:
- $125 per week for a child who was born in 2007 to 2016;
- $200 per week for a child who was born after 2016; and
- $275 per week for a child who was born in 2023 or earlier, but for whom the disability amount can be claimed.
Taking all of these figures into account, the computation of a deduction for summer day camp expenses for a typical Canadian family would look like this.
A two-income family has two children and both parents are employed. One spouse earns $65,000 per year, while the other earns $55,000. In 2023, one child is age 9 and the other is age 5. Neither child is disabled. During July and August, both of the children attend a local full-day summer camp, for which the cost is $300 per week per child.
- The first step is to determine the two-thirds of income figure. Since it is the lower-income spouse who must make the deduction claim, that figure is two-thirds of $55,000, or $36,630. Consequently, any deduction for child care expenses for the year cannot exceed $36,630.
- The second calculation is the total amount of child care expenses paid for each child:
$300 per week for eight weeks of summer camp, or $2,400.
Total child care expenses for each child are therefore $2,400.
- The last step is to determine the basic limit for child care expenses for each child, as follows:
- the limit for the 5-year-old (who was born after 2016) is $8,000, and so the entire $2,400 in summer day camp costs incurred can be deducted.
- the basic limit for the 9-year-old (who was born between 2007 and 2016) is $5,000, and so once again the entire $2,400 incurred for summer day camp costs can be deducted.
As well, since the camp is a day camp, the dollar amount cost limitations which apply with respect to overnight camps does not apply to limit the amount of expenses claimed by the family.
The total deduction available for child care expenses incurred for the 2023 tax year will therefore be $4,800. That deduction is claimed on Line 21400 of the tax return filed by the lower-income spouse for the year, reducing his or her taxable income from $55,000 to $50,200, and resulting in a federal tax savings of about $1,000. A similar tax deduction is claimed as well for provincial tax purposes, and the amount of provincial tax saved will depend on the tax rates imposed by the province in which the family lives.
While the availability of a “subsidy” through the tax system should never be the sole determinant of what activity or camp is the best choice, there’s no denying that being able to claim a deduction for the costs involved can tip the balance toward one or choice or another, or can bring a formerly unavailable option within a family’s financial reach.
Parents wishing to find out more about the child care expense deduction, and perhaps to calculate the maximum deduction which will be available to them for the 2023 tax year, should consult Form T778-22e. The form which is currently on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t778.html is from the 2022 tax year, and consequently the age limits must be adjusted by one year for child care expense claims for 2023. The form does, however, provide a detailed explanation of the rules governing the child care expense deduction, and those rules continue to apply for the 2023 tax year.