In an effort to reduce the burden of rising childcare costs in Ontario, the provincial government has introduced a new tax credit for eligible childcare expenses titled the Childcare Access and Relief from Expenses (CARE) tax credit. This new credit can be used in conjunction with the existing federal and provincial Child Care Expense Deduction (CCED) which is good news for parents with high childcare expenses.
The CARE credit supplements the existing CCED credit by benefitting lower income families. The existing CCED tends to provide the largest tax savings to higher income families. The CARE credit is designed to benefits those with household incomes of less than $150,000.
In order to be eligible for the new CARE credit, your household income must be lower than $150,000, and you must have incurred child care expenses in order to earn income from employment, business, or attend school. The latter requirement is the same for the CCED deduction.
The CARE credit is eligible on all types of childcare options such as licensed daycare facilities, in-home caregivers, babysitters, day camps, and nannies.
How credit is calculated
Families with household income of up to $20,000 will qualify for a credit of 75% of eligible childcare expenses per child which is the maximum amount of the credit. After that, the credit is based on a sliding scale driven by household income levels. Household income is the income of family members used in determining the CCED. As household income increases, the credit rate decreases. Once household income is $150,000, the CARE credit rate is zero.
Families that qualify for the 75% credit could receive up to $6,000 per child under seven, and $3,750 per child between seven and sixteen. For children with severe disabilities, the credit increases to a maximum of $8,250 per child.
The CARE credit will be claimed by the lower income earner in the household.
Records to be maintained
Parents are required to keep all receipts for childcare expenses being claimed as the CRA may request them for up to seven years.
Each receipt should be made out to the person who paid for the child care expenses. If childcare services are provided by an individual, the receipt should include the caregiver’s social insurance number.
The provincial government plans to provide families the opportunity to apply for periodic advance payments throughout the year. The alternative is to receive the entire amount in a single payment when filing your tax returns. The advance payment option is intended to be implemented in 2021.
For the upcoming tax year, families can receive additional tax relief from their childcare expenses with no additional filing requirements for those who have claimed the CCED in the past. With the introduction of the new CARE credit, the provincial government of Ontario hopes to alleviate some of the stress caused by the increasing costs of childcare on lower to moderate income families.
If you are unsure whether you are eligible for the tax credit or want to know how much your household will receive as a result of the CARE credit, feel free to contact us for additional information and insight on how this will affect your personal situation.
Blog post authored by Madison MacKellar
Edelkoort | Smethurst | Schein CPAs LLP is located in Burlington Ontario servicing the Golden Horseshoe and Greater Toronto Area and beyond. The firm is fully licensed with CPA Ontario to provide assurance, tax and accounting services as well as registered as tax preparers with the Canada Revenue Agency (CRA) & Internal Revenue Service (IRS). The firm is also registered as an IRS Certified Acceptance Agent.
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