To fill out Form T778, the Child Care Expenses Deduction form, you work through three parts: list each child and what you paid for their care in Part A, apply the annual per-child limits in Part B, then in Part C take the lowest of your actual expenses, those limits, and two-thirds of your earned income. That final figure goes on line 21400 of your T1 return.1Canada Revenue Agency. T778 Child Care Expenses Deduction Before you touch the form, though, you need to confirm you’re the right person to claim and that your expenses actually qualify.
Confirm You’re the Right Person to Claim
If you have a spouse or common-law partner, the partner with the lower net income generally has to be the one who claims. This isn’t a choice. The CRA requires it so that the deduction is applied at the lower tax bracket. If you’re single, separated, widowed, or your partner doesn’t live with you, you claim it yourself.2Canada.ca. Line 21400 – Child Care Expenses – Who Can Claim the Deduction
The higher-income spouse can claim instead only in specific situations: the lower-income partner was enrolled in secondary or post-secondary school (full- or part-time), was confined to a bed, wheelchair, hospital, or similar institution for at least two weeks because of a physical or mental condition, or was in prison or a similar institution for at least two weeks.2Canada.ca. Line 21400 – Child Care Expenses – Who Can Claim the Deduction When one of these exceptions applies, the deduction shifts to a weekly calculation covering only the qualifying weeks, not the full annual limit.
Which Children Qualify
A child qualifies if they were under 16 at any point during the tax year. A child 16 or older still qualifies if they have a mental or physical infirmity and depend on you or your spouse for support. The child must be yours, your spouse’s or common-law partner’s, or a dependant whose income for the year doesn’t exceed the basic personal amount.3Justice Laws Website. Income Tax Act RSC 1985 c 1 (5th Supp) – Section 63
Check whether any of your children qualify for the disability tax credit before you start. It changes the annual limit substantially, and Part B is built around those categories.
Add Up the Right Expenses
Eligible costs are payments to daycare centres, nursery schools, nannies, babysitters, and day camps, for care that let you earn income, run a business, attend school, or conduct research.4Canada Revenue Agency. Line 21400 – Child Care Expenses – Expenses You Can Claim
Who provided the care matters. The provider can’t be the child’s parent, your spouse or common-law partner (if they are the child’s parent), a person you or someone else claimed as a dependant, or a relative under 18. Paying a 17-year-old niece to babysit, for example, doesn’t count.4Canada Revenue Agency. Line 21400 – Child Care Expenses – Expenses You Can Claim
Some costs never qualify, even when a child care provider charges them:
- Medical or hospital care
- Clothing and transportation
- Tuition for regular academic programs, or fees for sports study programs at educational institutions
If your daycare, preschool, camp, or boarding school bundles supervision together with tuition, meals, or lodging, only the supervision portion is deductible. Ask the provider for an itemized receipt before you file.4Canada Revenue Agency. Line 21400 – Child Care Expenses – Expenses You Can Claim
Know the Per-Child Limits You’ll Apply in Part B
The annual maximum you can deduct per child depends on the child’s age and disability status:3Justice Laws Website. Income Tax Act RSC 1985 c 1 (5th Supp) – Section 63
- $11,000 for a child who qualifies for the disability tax credit, at any age
- $8,000 for a child under 7 at the end of the tax year
- $5,000 for a child aged 7 to 15, or a child 16 or older with a mental or physical infirmity who doesn’t qualify for the disability tax credit
Overnight camps, overnight sports schools, and boarding schools use weekly caps instead, set at one-fortieth of those annual figures: $275 per week for a child eligible for the disability tax credit, $200 for a child under 7, and $125 for a child aged 7 to 15.3Justice Laws Website. Income Tax Act RSC 1985 c 1 (5th Supp) – Section 63 The same weekly amounts govern claims by the higher-income spouse under the exceptions above, applied only to the qualifying weeks.2Canada.ca. Line 21400 – Child Care Expenses – Who Can Claim the Deduction
Work Through Parts A, B, and C
Download the form from the CRA website or open it in certified tax software.1Canada Revenue Agency. T778 Child Care Expenses Deduction The three main parts do the following work.
Part A is where you list each child by name and year of birth and enter total expenses paid for that child. Overnight camp and boarding school amounts are adjusted here against the weekly caps before they roll into the totals.
Part B is the annual-limit calculation. You count how many of your children fall into each category ($11,000, $8,000, or $5,000) and multiply to get your combined ceiling.
Part C compares three numbers: what you actually paid, the Part B ceiling, and two-thirds of the claimant’s earned income for the year. Your deduction is the lowest of the three.3Justice Laws Website. Income Tax Act RSC 1985 c 1 (5th Supp) – Section 63
The earned income cap is the one that surprises people. Earned income covers employment wages, net self-employment income, CPP or QPP disability payments, taxable scholarships and research grants, apprenticeship grants, and certain government financial assistance included in income. Investment income, rental income, and other pensions don’t count.5Canada Revenue Agency. Income Tax Folio S1-F3-C1 – Child Care Expense Deduction If the claiming spouse had little or no earned income, the deduction can shrink to a fraction of what you paid, or to zero.
If the higher-income spouse is claiming under one of the exceptions, extra lines on the form handle the weekly calculation and ask for details about the specific weeks the lower-income partner was in school, in hospital, or confined to an institution.
Receipt Requirements
Every receipt has to show the provider’s name and mailing address; the provider’s Social Insurance Number if they’re an individual; the child’s name; the amount paid; and the specific dates or period covered. The provider must sign and date it.6Canada.ca. Issuing Receipts for Daycare A receipt missing any of these fields should be corrected before you file. Incomplete receipts are one of the most common reasons the CRA reassesses a child care claim.
File the Form and Keep Your Records
Move the final deduction from Part C onto line 21400 of your T1 General Income Tax and Benefit Return. It reduces your total income before federal and provincial tax are calculated.1Canada Revenue Agency. T778 Child Care Expenses Deduction If you file on paper, attach the completed T778. Certified software transmits it electronically.
You don’t send receipts with your return, but you must keep them, along with a copy of the form, for at least six years from the end of the tax year they relate to.7Canada Revenue Agency. How Long Should You Keep Your Income Tax Records Hold onto cancelled cheques and bank statements too. The CRA can ask for more than just the official receipts.
If the CRA Reviews Your Claim
Child care expenses are among the deductions the CRA reviews most often. A review usually begins with a letter asking you to mail in your receipts and supporting documents. If everything matches, the return stands. If receipts are missing or don’t line up with what you claimed, the CRA reassesses and you owe the difference plus interest.
Honest mistakes produce a corrected assessment. Where the CRA finds that someone knowingly claimed ineligible expenses or made up receipts, the penalty under the Income Tax Act is the greater of $100 or 50% of the tax that was understated, on top of the tax and interest owed.8Justice Laws Website. Income Tax Act RSC 1985 c 1 (5th Supp) – Section 163