Page 40 - A Canuck's Guide to Financial Literacy 2020

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Example of Daycare Cost Deduction

Steve and Jennifer paid $10,000 in eligible child care expenses during the
year for their three-year-old daughter. Steve's income for the year was
$45,000 while Jennifer earned $42,000. To claim the tax deduction,
Jennifer would have to make the claim as her income is lower than Steve.
Her deduction is limited to the lower of 2/3 of her income or total cost
of daycare. Her limit is $27,972 ($42,000 x 66.6 = $27,972) and total cost
of daycare is $10,000.

However, as their daughter is under 7, the maximum deduction that they can
claim is $8,000. No deduction can be claimed for the extra $2,000.

In certain situations, the higher income spouse may claim the deduction if the lower income
spouse is:

▪ Is attending school

▪ Is in jail
▪ Is in the hospital
▪ Incapable due to mental or physical conditions

Filing the Deduction

To claim the deduction, you would have to complete form T778 Child Care Expenses
Deduction. Make sure that during the year, you keep all the receipts showing proof of
payment. Receipts aren’t filed with the applicable forms but CRA may ask to see the
receipts as proof.