Childcare Expenses and You
If you employ a nanny to take care of your kids to enable you to work, attend school or conduct research, the cost can generally be deducted as a childcare expense for tax purposes.
The amount you can deduct annually is $7,000 for each child age six and under and $4,000 for each child between seven and 16. If the child is eligible for the disability tax credit, you can deduct $10,000 regardless of the child's age.
Interestingly, there is no technical requirement that the childcare expenses you pay be spent on specific children to be deductible. For example, let's say you have two kids, ages one and six. The sixyear-old child is in school full-time, but you hire a nanny to take care of the twoyear-old while you are at work. You are still entitled to claim up to $14,000 as a childcare deduction since you have two kids age six and under.
The total childcare expense deduction is generally limited to two-thirds of the lower-income spouse or partner's "earned income," which includes employment or self-employment income, taxable bursaries or fellowships and research grants.
As for specific nanny expenses, the cost of the wages paid along with the employer's portion of Canada Pension Plan contribution and employment insurance premiums all qualify. Recently, the Canada Revenue Agency was asked about other specific expenses paid by an Ontario family with three children who brought a nanny to Canada from overseas under Citizen and Immigration Canada's Live-in Caregiver Program (LCP).
The parents wanted to know whether transportation costs they paid for their live-in nanny to move from her country of residence to the employer's residence in Canada would be deductible. Also, they asked whether three months of interim medical insurance coverage in Ontario as well as Workplace and Safety Insurance Board (WSIB) employer premiums would also be allowable childcare expenses.
The CRA stated that since the cost of transportation under the LCP is listed under the agreement as the "responsibility of the employer," it would qualify. Similarly, the LCP classifies the cost of the interim healthcare insurance as an "employer cost" and since the employer must agree not to deduct money from the nanny's wages to cover this cost, it would also be an allowable childcare expense.
Under the Ontario WSIB rules, "(a) private householder who employs a domestic worker for more than 24 hours a week must register as an employer of domestic workers with the WSIB," a category that includes babysitters and nannies. Since this is an ongoing required expense for an employer, the WSIB premiums could also be considered as valid eligible childcare expenses.
Finally, note that if you are searching for a childcare help, the CRA has previously confirmed that any advertising expenses or placement-agency fees you pay to locate a nanny can also be claimed as childcare expenses.