Child-Care Expenses for Self-Employed Parents

Canadian parents pay an average of $7,557 per year for full-time child care for just one young child. That's about $630 a month. Fortunately, the Canada Revenue Agency (CRA) can offer some relief in the form of a child-care expense deduction.

Parents can lower their tax bill by claiming a wide range of eligible child-care expenses. Child-care expenses are deducted directly from your taxable income, which means you'll pay less tax at the end of the year. They're not refundable tax credits.

You'll learn step-by-step which expenses qualify, who can claim them, and how much you're allowed to deduct—which can be especially helpful for the busy self-employed. You'll also find out how TurboTax can make it easy to keep track and claim your deductions, so more of your money stays where it belongs—with your family.

Who can claim child-care expenses?

When you're raising kids and running a business, you're often part of a team. But when it comes to claiming the child-care expense deduction, only one parent can report it on their return. So how do you decide which one?

Typically, the lower-income spouse or partner would be the one to claim child-care expenses. For example, let's say you're freelancing as a graphic designer and earn about $50,000 per year, while your spouse has a full-time job and earns $85,000.

But there are some exceptions. If you're a single parent or the only parent earning income, you would claim all eligible child-care expenses. This means if you're a solo, self-employed parent, you would fully benefit from the deduction yourself.

What if a couple's incomes are exactly equal, as can happen if you run a business together and share profits evenly? In this scenario, you can choose between yourselves as to who claims the expenses.

When does the lower-income parent not claim child-care expenses?

In some families, the lower-income parent might not be in a position to claim child-care expenses. The CRA provides clear exceptions for allowing the higher-income parent to step in. These exceptions can apply if the lower-income parent:

• works part-time or full-time in education.
• is incapable of caring for the child due to a physical or mental impairment.
• is incarcerated.

In case of a shared custody situation, each parent can only claim the expenses paid for the periods in which the child lived with them. The same situation applies if there was a prolonged separation of over 90 days—even if the parents later reconciled.

What child-care expenses can a self-employed parent claim?

The CRA is clear about which costs can be counted as child-care expenses for tax purposes. These typically include:

• Daycare and nursery schools. Fees paid to licenced daycares, preschool programs, or nursery schools.
• Home caregivers or babysitters. Payments to individuals who provide child-care services in your home, such as nannies, babysitters, or live-in caregivers, allowing you to focus on your work.
• After-school programs and day camps. Fees for child care provided by schools, day camps, or after-school programs, as long as the primary purpose is child-care supervision (and not primarily educational or recreational activities).
• Boarding school or overnight camp. You can claim the portion of fees specifically related to child care—like supervision and lodging costs—when your child attends overnight camps or boarding school. Keep in mind, there are weekly limits set by the CRA for these expenses.
• Costs to find child care. Fees you pay to child-care placement agencies or advertising costs to hire a nanny or caregiver.
• Employer payroll contributions. If you hire an in-home caregiver (such as a nanny), you can also deduct the employer portion of required payroll contributions, like Canada Pension Plan (CPP) or Employment Insurance (EI) premiums.

Always keep detailed records and receipts of child-care payments, clearly noting the purpose and amounts.

What expenses cannot be claimed?

While many expenses may feel related to caring for your kids, the CRA has clear rules about what's not eligible for a child-care expense tax deduction. Here's a quick breakdown of common costs you cannot claim:

• School tuition or education costs
• Private tutors or lessons
• Healthcare or medical expenses for the child. These may qualify as medical expense credits, but not as child-care deductions.
• Recreational or extracurricular fees
• Transportation costs
• Clothing, food, or other personal costs
• Payments to a relative under 18 or another parent. This includes parents, grandparents, or siblings. Nieces, nephews, aunts, uncles, and cousins aged 18 or older can be hired for child-care purposes and any payment to them can be deducted.
• Expenses reimbursed or covered by others. Be careful not to double-dip. If you received any reimbursement or subsidy for child care, you cannot claim that portion of expenses.

How much in child-care deductions can you claim?

The CRA sets annual limits for how much you can deduct in child-care expenses per child. These can vary depending on your child's age, their specific needs, and your total earned income for the year.

Annual child-care expense deduction limits per child (for tax year 2025):

• $8,000 per child under age 7 at the end of the tax year.
• $5,000 per child aged 7 to 15.
• $11,000 per child of any age who qualifies for the Disability Tax Credit (DTC) —severe and prolonged impairment.
• $5,000 per child over 15 who has a disability but doesn't qualify for the DTC.

Your deduction is also capped by your income:

Aside from the per-child limits, your total child-care expense deduction cannot exceed two-thirds of your earned income for the year. Earned income includes income from regular employment and any self-employed earnings.

Here's a quick example:

If you earned $30,000 from your freelance business in a year, the maximum total you could deduct in child-care expenses is $20,000 (which is two-thirds of $30,000, even if your actual expenses or per-child limits are higher).

This two-thirds rule won't affect most people, but it can come into play if you have particularly high child-care costs compared to your income.

TurboTax Self-Employed can help calculate these limits for you, ensuring you claim exactly what's allowed.

How can you file self-employed tax and claim child-care expenses?

Claiming the deduction as a self-employed parent is straightforward and very similar to any other parent claiming child care. But you’ll claim it on your personal tax return, not on any business statements. Here are the steps:

• Step 1 - Gather your documentation. Collect all receipts or payment records for your child-care expenses throughout the year. Each receipt should clearly show:
  • Child-care provider’s name and address
  • Dates of service and amounts paid
  • Social Insurance Number (SIN) of babysitters or nannies (individual caregivers)
  • Your name or your spouse’s name as the payer
• Step 2 - Fill out Form T778. Use Form T778 to calculate how much you can claim. Form T778 guides you through:
  • Part A: Total child-care expenses for all children.
  • Part B: Calculation of your maximum allowable deduction.
  • Part C: Only if you're the higher-income spouse claiming under an exception.
  • Part D: Only if you're the lower-income earner and were enrolled as a student during the year.
    
    
• Step 3 - Enter the deduction on your tax return. After completing Form T778, transfer the calculated deduction amount to line 21400 of your T1 General tax return.
  
  
• Step 4 - File your return. When you use TurboTax, our software can help make this step easy: Simply answer straightforward questions about your child-care expenses, and TurboTax automatically completes Form T778 and line 21400 for you—adding all applicable limits and deductions. If filing by paper, attach your completed Form T778 to your T1 return.
  
  
• Step 5 - Keep your receipts. Remember, you don't need to send child-care receipts to the CRA when you file your return, but you must keep them safely for at least 6 years. The CRA might request these receipts later to verify your claims.

Child-care expenses? Self-employed? TurboTax makes it easy.

TurboTax can help ensure you're claiming child-care costs correctly and easily, guiding you through every step.

File confidently with TurboTax Self-Employed now.

FAQs

Is daycare tax-deductible for self-employed people?

Yes. Daycare and other child-care expenses are tax-deductible as a personal deduction (line 21400), reducing your taxable income. The child care must enable you to work or run your business, and receipts from eligible providers (e.g., licenced daycare or registered caregivers) are required.

How much can you claim for child-care expenses?

You can claim up to $8,000 per child under 7, $5,000 per child aged 7 to 15, or $11,000 per child eligible for the Disability Tax Credit (DTC). Your total deduction also can't exceed two-thirds of your earned income for the year.

What is line 21400 and Form T778?

Line 21400 is the spot on your tax return for claiming child-care expenses. Form T778 is the supporting form that calculates how much you can deduct, based on your child-care expenses and personal situation.

TurboTax experts are on hand to guide you through this process.

Who should claim child-care expenses when one parent is self-employed?

Generally, the spouse with the lower net income would claim the deduction. Exceptions include situations like disability, attending school, or separation. Even if the higher-income parent paid the expenses, the lower-income spouse typically claims them.

Can you claim child-care expenses as a business expense?

No, child-care costs are seen by the CRA as personal expenses, not business expenses. They can't be claimed on your business forms or T2125. You must claim them as personal deductions on Form T778 (line 21400).

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