Everything you need to know about childcare expense deductions and credits

Childcare costs make up a significant proportion of a family’s budget. Fortunately, the federal and provincial governments have introduced a number of tax breaks in the form of deductions and refundable credits for childcare expenses. We explain everything in this financial column by Julie St-Cyr, Financial Planner and Director of Sales and Business Development at Kaleido, to help you complete your next income tax return.

What children are eligible for childcare expense deductions?

First and foremost, the child must reside with the person paying the childcare expenses during the taxation year. The child must be yours or your spouse’s and must be 16 years of age or under during the taxation year.¹

The child must also meet one of the following conditions:

• Be your or your spouse’s dependant and have a mental or physical disability (no age limit)
• Be your or your spouse’s dependant and have income for the taxation year not exceeding $11,081 for Revenu Québec and $14,398 for the Canada Revenue Agency (CRA)

Who can claim childcare expenses?

Usually, the person in the couple with the lower net income (even zero) has to claim the childcare expenses. However, in some cases, the person with the higher net income can claim the expenses (for example, if the spouse with the lower income is in school).

A single-parent taxpayer can deduct the full cost of childcare, regardless of salary. People receiving Québec Parental Insurance Plan and Employment Insurance benefits can also claim childcare expenses.

What childcare expenses qualify for a deduction?

Broadly speaking, childcare expenses are what you pay to have your child looked after so that you can work, run a business, pursue your education or look for a job.

Eligible expenses include those paid to the following organizations or individuals:

• A babysitter (with receipt and SIN)
• Childcare centres and home childcare providers
• Kindergartens, nursery schools and daycare centres
• School daycare service providers
• Day camps, playground programs, educational workshops, municipal recreation centres and day sports schools
• Boarding schools, summer camps and overnight sports schools

A complete list of organizations and services eligible for federal tax deductions and Quebec tax credits is available on the Revenu Québec and Canada Revenue Agency (CRA) websites.

You should also know that the Reduced Contribution Program has a network of over 220,000 subsidized spaces for parents in Quebec.

How do I calculate my tax credit for childcare expenses?

For Revenu Québec, the amount of the tax credit is the amount of childcare expenses multiplied by the tax credit rate for your family income, i.e., your income plus your spouse’s income, if applicable.

To find out the cost of a childcare space, you can use the Quebec government’s calculator to compare the daily rates for subsidized and non-subsidized childcare, including Quebec and federal tax assistance. The daily contribution to subsidized childcare services is indexed annually on January 1. In 2023, all parents pay a single reduced rate of $8.85.

How does the childcare refund work?

Under certain conditions, you can apply for advance payments of the tax credit for childcare expenses instead of waiting for your tax return to be processed and a subsequent payment to be made. If you qualify, you will receive monthly tax credit payments on the 15th of each month. In 2023, the maximum amount of eligible childcare expenses is $11,360.

In short, childcare expense deductions can generate a large income tax refund if you pay for non-subsidized childcare. Make sure you qualify.

Julie St-Cyr - Financial Planner