5.5 — Child care deductions
Summary of Policy
Child care expenses can be deducted from employment earnings, training wages, or business income of a recipient, spouse, or dependant adult when calculating chargeable income.
Summary of Directive
This directive outlines child care deductions and how they are applied to employment income.
Child care expenses are deducted from employment earnings, training wages, or business income up to the established maximums for eligible recipients, spouses, or dependant adults where child care costs are not otherwise reimbursed or reimbursable from another funding source.
Intent of Policy
To encourage recipients and members of the benefit unit to participate in employment or training by allowing child care expenses as a deduction from their net employment earnings, training income, or business income.
Application of Policy
Child care expenses are payments made by a recipient or an eligible member of the benefit unit for child care to enable him/her to work or participate in a training program.
The recipient, spouse, or dependant adult can choose the type of child care provider (licensed or unlicensed) they need.
An amount for child care expenses is deducted from a recipient’s net earnings. The amount depends on whether the child care is licensed or unlicensed.
Licensed Child Care
Where child care is provided by a licensed provider, the actual costs of child care are eligible as a deduction from the recipient’s monthly net employment earnings, training wages, or business income. There is no maximum.
Licensed child care is provided in a day nursery or by a private-home day care agency licensed under the authority of the Day Nurseries Act. The Day Nurseries Act establishes minimum standards including physical space, staff qualifications, child to staff ratio, health and safety, nutrition, and basic programming.
A day nursery is defined as a premise that receives more than five children, for the purpose of providing temporary care and guidance, for children under the age of 10 years, and for children with special needs under the age of 18. Day nursery services are provided in child care centres, nursery schools, and before and after school programs.
Private-Home Day Care
A private-home day care agency provides private-home day care at more than one location. Private-home day care means the temporary care for reward or compensation of five children or less who are under ten years of age in a private residence, other than the home of the parent of any of the children.
Provincial School Boards
Before and after school programs are provided by provincial school boards who have implemented the Full Day Early Learning Kindergarten Program under the authority of the Education Act. Before and after school program fees are eligible as a deduction from the recipient’s monthly net employment earnings, training wages, or business income. There is no maximum.
The Education Act provides that school boards may operate the Extended Day Program in schools implementing the Full-Day Early Learning Kindergarten Program. The Extended Day Program includes the before and after school program.
Note: Costs incurred for licensed child care under the Day Nurseries Act and fees for before and after school programs under the Education Act are treated in the same manner for the purposes of earnings deductions.
Where child care is provided by an unlicensed provider, the actual costs of child care are eligible as a deduction from the recipient’s monthly net employment earnings, training wages, or business income up to a maximum of $600 per child per month. The amount is the same for all children, including children who require child care for special circumstances.
Unlicensed (informal) child care can be provided by a wide variety of caregivers including relatives, friends, neighbours, community members or nannies. An informal provider may provide care for up to five children in addition to her/his own children.
Informal child care can also include alternative child care arrangements in community programs such as after school, parks and recreation programs or camps.
Child care expenses are not deducted if they have been reimbursed or can be reimbursed through another funding source. Where partial reimbursement of child care expense is received, the non-reimbursed portion is an allowable expense.
Child care costs that are paid for by other funding sources (e.g. fee subsidy) are subtracted from child care costs. Only the non-reimbursed amount is the amount considered as an allowable deduction up to the maximum.
The Ontario Child Care Supplement for Working Families (OCCSWF) is not subtracted from the child care costs paid by the recipient.
Note: The OCCSWF is a tax-free monthly supplement to help qualifying families who are in financial need with the costs of raising children under 7 years of age. Payments are received in equal monthly instalments by parents in receipt of the Canada Child Tax Benefit. The maximum annual payment for qualifying two-parent families is $1,100 multiplied by the number of children under age 7. The maximum annual payment for qualifying one-parent families is $1,310 multiplied by the number of children under age 7. Recipients are expected to access OCCSWF first before accessing ODSP child care deductions.
The OCCSWF will be consolidated into the Ontario Child Benefit (OCB) payment and will be phased out after the OCB has reached maturity in 2011. Families with a child born before July 1, 2011, will continue to be eligible for a supplementary OCCSWF payment equal to the difference between their maximum OCCSWF benefit and the family’s OCB benefit until the child reaches age 7. Families with a child born after July 1, 2011, will not receive OCCSWF benefits.
Recipients who receive the OCB remain eligible to have child care expenses deducted from employment earnings, training wages, or business income up to the established maximums.
Where a recipient has fully subsidized day care and is charged daily user fees, only the user fees are allowed as a deduction.
Child care expenses are not deductible when they are paid to a member of the benefit unit.
In situations where there is more than one child in child care, the allowable costs for both children should be totalled and this amount used as the expense deduction, subject to the maximum limits.
In situations where both the recipient and spouse are working or one spouse is employed/self-employed and the other spouse is in a training program, the total child care costs are deducted from the combined net earnings, business income, and/or net training income of the benefit unit.
In a two-parent family where only one spouse is working or in a training program, child care costs will be allowed only where there is sufficient evidence that the spouse who is not working is unable to provide the child care due to disability, job search purposes, or education for a length of time deemed to be appropriate and approved by the Director.
ODSP recipients who are also in receipt of Assistance for Children with Severe Disabilities (ACSD) remain eligible to deduct child care expenses from their earnings. The ODSP child care deduction differs from the parental relief included in the ACSD budget which is designed to allow the parent some time away from the strains of caring for a child with a disability.
ODSP applicants and/or recipients who are in receipt of Temporary Care Assistance may deduct child care expenses from their earnings in respect of the children who are temporarily in their care.
Verification of Child Care Expenses
Acceptable verification may include receipts from a licensed child care provider, income tax returns, or a Child Care Receipt Form (2843) for unlicensed child care providers.
Up-Front Child Care Payment
An up-front child care payment may be issued to a recipient, spouse, or dependent adult who is beginning a new job, training program, or employment activity approved by the Director and an up-front payment is necessary in order for him/her to begin the job or activity approved by the Director. (See Directive 9.1 Employment and Training Start Up Benefit (ESUB) and Up-Front Child Care Costs.)
The up-front payment for child care is subject to the same maximum amounts as outlined in this directive and includes licensed child care under the Day Nurseries Act, before and after school programs provided under the Education Act, and unlicensed child care.
In the first month of employment or training, recipients are eligible to deduct child care costs from their net income, as outlined in this directive, even if they have received an up-front child care payment. This will ensure that recipients with ongoing child care costs while working will have sufficient income to cover their child care costs.
2.1 Who is Eligible: Dependent Adults
2.2 Who is Eligible: Dependent Children
3.1 Reviewing Eligibility
5.3 Deductions from Employment and Training Income
5.4 Treatment of Self-Employment Income
5.14 Treatment of Federal and Provincial Benefits for Families
9.1 Employment and Training Start Up Benefit (ESUB) and Up-Front Child Care Costs