Who uses the T778 tax form?
The T778 form is designed for people claiming a child care expense deduction. This reduces your income and saves you tax at your marginal tax rate. Child care expenses represent a deduction and not a tax credit.
Who can claim child care costs?
In most cases, child care expenses are claimed by the parent with the lower net income. If the parents are separated and share custody, they can each claim the part of the child care costs that they paid.
Can the higher-income parent claim the childcare expenses?
Only in specific situations can the higher income claim the expenses:
- If the lower-income person was attending school for a fulltime or a part-time educational program,
- If the lower-income person had an impairment or was sick and confined in a hospital bed for at least two weeks,
- If the lower-income person was confined in prison for at least two weeks, or
- If both supporting parents were living separately by the end of the tax year due to a breakdown in the relationship
In what situations can I claim child care expenses?
You can claim child care expenses for a child under 16 at the beginning of the year, unless your child qualifies for the disability tax credit, in which case there is no age limit. The deduction is available to enable parents to earn employment income, run a business, take courses in an educational program for at least 3 consecutive weeks, or do research or work for which they have received a grant.
What kinds of expenses are covered?
You can get a family tax deduction for payments to day-care centers and day nursery schools, some individuals providing child care services, day camps and day sports schools, educational institutions such as private schools (the portion of tuition costs relating to child care services), boarding schools, and overnight sports schools and camps.
How much from the childcare expenses I can claim?
You will need to fill the T778 form to determine which partner can claim the expenses:
Part A: in this section, list all your children under the age of16 even if they don’t attend daycare or camps. The reason for listing all the children is to maximize the eligible expenses you can claim based on the age not just the amount paid. Then itemize the expenses by the child’s name and the expenses related to each child. You will find a list of how much you can claim per child depending on the type of care they received.
Part B: use this section if you are the one with the lower net income. In this section, you calculate the basic limit of eligible expenses you are entitled to for each child according to age and health:
- Basic limit for a 6 years old child or younger is $8,000
- Basic limit for a child between the age of 7 and 16, or a child who is above 16 of age and infirmed but cannot claim the disability amount is $5,000
- Basic limit for a child with mental or physical impairment and can claim the disability amount regardless of the age is $11,000
Next, calculate 2/3 of your earned income. The lesser of the basic amount, 2/3 of earned income, and the actual expenses paid will be your allowable expenses to claim on line 21400 of your income tax return.
- Income from employment, self-employment, or casual income such as tips and odd jobs
- Disability pension
- Scholarships and grants
- Government financial assistance
- Apprenticeship Grants paid by Employment and Social Development Canada (not the regular EI benefit paid for unemployment)
Part C: if you are the higher income person and are eligible to claim the childcare expenses, you calculate the portion you can claim in this section. You can only claim the expenses paid during the period explained previously (if the lower-income person is in school, person, sick, or separated form you). Your basic limit will be the amount calculated part B multiplied by 2.5%.
Jennifer’s earned income last year was $35,000 and Ben’s earned income was $60,000. They live together and have three children ages 5, 10, and 13 years old. They paid $7,000 for their daycare center last year. They deduct the lesser of:
- 2/3 of the lower earned income = 2/3 x $35,000 = $23,333.33
- Basic limit per child (part B of the T778) = 1 child x $8,000 + 2 children x $5,000 = $18,000
- Actual daycare expenses incurred = $7,000
So, they will be able to claim a deduction of $7,000 in Jennifer’s income tax return
If Jennifer was sick, and confined in a hospital bed for 3 weeks:
- Calculate 2.5% of the basic limit = 2.5% x $18,000 = $450
- Calculate the amount Ben can claim = 3weeks x $450 = $1,350
So Ben will claim $1,350 in his income tax, and Jennifer will claim the remaining amount: $7,000 – $1,350 = $5,650
Part D: use this section if you were the only supporting parent and were enrolled in an educational program, or if you are the higher income parent and both you and your partner are enrolled in educational programs.
Keep in mind that the calculations in this section are based on your net income, not the earned income. Which means that EI benefits will be considered as income for students.
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