Table of Contents
- Claiming Child Care Expenses – Rules and Eligibility
- Filling Out the T778 Form for Child Care Expenses
- Rules for Spousal and Child Support Payments (Canada)
- Example of How to Report Child and Spousal Support Payments on a Canadian Tax Return
Claiming Child Care Expenses – Rules and Eligibility
Child care expenses are an important and often significant deduction available to parents in Canada. These expenses help reduce taxable income for families who pay for the care of their children while they work, attend school, or run a business.
This section will walk you through the basic eligibility rules, who can claim, maximum claim limits, and what qualifies as eligible child care expenses — all explained in a beginner-friendly way.
1. Who Can Claim Child Care Expenses
Child care expenses can be claimed by:
- Single parents
- Married or common-law couples
However, there is a key rule about who in the household is allowed to make the claim:
➡️ The spouse or partner with the lower net income must claim the deduction, even if the higher income spouse paid for the expenses.
This is a fixed rule — it cannot be transferred to the higher income spouse just because the lower-income spouse does not have enough taxable income to benefit from the deduction.
2. Who is an “Eligible Child”?
An eligible child for child care expenses is:
- The taxpayer’s child or a child dependent on the taxpayer (this includes adopted children, nieces, nephews, grandchildren, etc.).
- The child must be under 16 years old at some time during the year.
Once the child turns 17, child care expenses for them can no longer be claimed.
3. Maximum Deduction Limits
The maximum amount that can be claimed depends on the child’s age:
| Child’s Age | Maximum Annual Deduction per Child |
|---|---|
| 6 years and under | $8,000 |
| 7 to 16 years old | $5,000 |
If a family has more than one eligible child, these amounts are used to calculate the total family limit, not necessarily tied to each child individually.
For example:
- A family with a 2-year-old and a 10-year-old can claim up to $13,000 in total ($8,000 + $5,000).
- It doesn’t matter if most of that $13,000 was spent on only one child — what matters is that the total expenses don’t exceed the overall limit.
4. Income-Based Limitation
There’s an additional limit based on the lower-income spouse’s earned income (from employment or self-employment).
Child care expenses cannot exceed two-thirds (⅔) of that person’s earned income.
For example:
- If the lower-income spouse earned $10,000 during the year, the maximum allowable deduction would be $6,666, even if more was spent.
5. Earned Income Requirement
The lower-income spouse must have earned income, which includes:
- Employment income (wages, salaries, tips)
- Self-employment income
❌ Investment income, pensions, or other passive income sources do not count as earned income for this purpose.
So, if the lower-income spouse stayed home and only earned investment income (for example, dividends or interest), they cannot claim child care expenses.
6. Eligible Child Care Expenses
Eligible child care expenses can include payments made for:
- Daycare centres and nursery schools
- Babysitters or nannies (if their SIN is provided)
- Day camps and day sports schools (for children under 16)
- Boarding schools or overnight camps (limited amounts may apply)
These expenses must be incurred to allow the parent or supporting person to:
- Work or carry on a business,
- Attend school, or
- Perform research under a grant.
7. Receipts and Documentation Requirements
Even though tax returns are now e-filed and receipts are not mailed to the CRA, it is still crucial to keep all receipts and documentation in case of a CRA review or audit.
Each receipt should clearly show:
- The name of the parent(s) who paid,
- The name of the child(ren) receiving care,
- The amount paid and dates of service,
- The name and address of the caregiver or institution, and
- The Social Insurance Number (SIN) of the caregiver, if it’s an individual (not a daycare business).
If the caregiver is an employee (for example, a live-in nanny), the employer must issue a T4 slip to them — that T4 will serve as the proof of payment for child care purposes.
8. Summary of Key Rules
| Rule | Description |
|---|---|
| Who claims | Lower-income spouse or partner |
| Eligible child | Under 16 years old (or dependent child) |
| Maximum deduction | $8,000 (under 7) or $5,000 (7–16) per child |
| Income limit | Cannot exceed ⅔ of lower-income spouse’s earned income |
| Earned income required | Yes – employment or self-employment income only |
| Receipts required | Must include parent’s and child’s names, caregiver info, and payment details |
9. Key Takeaways for Beginners
- Always check who in the household has the lower income — they must claim the expenses.
- Ensure the child qualifies (under 16 or dependent).
- Keep detailed receipts — CRA frequently reviews these claims.
- Remember that the deduction reduces taxable income, not the tax owing directly.
- Understand that if the lower-income spouse has no earned income, no deduction can be claimed.
Filling Out the T778 Form for Child Care Expenses
When it comes to claiming child care expenses on a Canadian income tax return, all of the details are recorded on Form T778 – Child Care Expenses Deduction. This form helps the Canada Revenue Agency (CRA) determine how much a taxpayer can deduct based on family income, the number of children, and the nature of the expenses paid.
For beginner tax preparers, understanding how to complete this form accurately is key — since the CRA often reviews child care expense claims closely. Let’s break down how the T778 works and what information you need before filling it out.
1. What the T778 Form Is For
Form T778 – Child Care Expenses Deduction is used to:
- Report all eligible child care expenses paid during the year;
- Determine the maximum amount that can be claimed; and
- Identify which parent or supporting person is entitled to make the claim (usually the lower-income spouse).
The form ensures that all the CRA rules — such as age limits, income tests, and expense caps — are applied correctly before the final deduction is entered on the tax return.
2. Step 1 – Identify the Eligible Children
At the top of the T778, you’ll list all eligible children for whom child care expenses were paid.
For each child, include:
- The child’s name and date of birth;
- The child’s net income, if any (rare, but required if the child earned income); and
- The relationship to the taxpayer (for example, son, daughter, or dependent child).
It’s crucial that the child’s date of birth is accurate — this determines whether the child is under 7, between 7 and 16, or over 16, since the age affects the deduction limit.
3. Step 2 – Determine the Maximum Claim Limit
The form then helps calculate the maximum allowable deduction for the family. The CRA’s current limits are:
| Age of Child | Maximum Annual Deduction per Child |
|---|---|
| Under 7 years old | $8,000 |
| 7 to 16 years old | $5,000 |
If a family has multiple children, the total limit is combined across all eligible children.
For example:
If a family has two children under 7 and one child aged 10, the calculation would be:
- (2 × $8,000) + (1 × $5,000) = $21,000 total.
This means the family can deduct up to $21,000 of child care expenses in total for the year.
The distribution of expenses among the children doesn’t matter — it’s the total that counts. Even if most expenses were for one child, as long as the overall total stays under $21,000, it can be fully deducted.
4. Step 3 – Check the Two-Thirds Income Rule
The CRA limits the deduction to no more than two-thirds (⅔) of the earned income of the lower-income spouse.
This rule ensures that the deduction doesn’t exceed what that person reasonably earned from working.
For example:
- If the lower-income spouse earned $18,500, the maximum allowable deduction is:
$18,500 × ⅔ = $12,333
Even if the family spent $20,000 on child care, they can only deduct $12,333 in this case.
5. Step 4 – Earned Income Requirement
To claim child care expenses, the claiming spouse must have earned income — meaning:
- Employment income (T4 earnings); or
- Self-employment income.
❌ Income from interest, dividends, capital gains, pensions, or other investment sources does not count as earned income.
So, if the lower-income spouse earned only investment income, they cannot claim child care expenses — and the deduction cannot be transferred to the higher-income spouse (except in certain special cases).
6. Step 5 – Recording the Expenses
Next, record the actual amounts paid for child care. These can include:
- Licensed daycare centres;
- Babysitters or nannies (include their Social Insurance Number if paid directly);
- Day camps or day sports schools (for children under 16);
- Boarding schools or overnight camps (subject to weekly limits).
When entering expenses for boarding schools or overnight camps, CRA imposes special weekly limits rather than annual ones:
- $200 per week for children under 7,
- $275 per week for children aged 7–16, and
- $400 per week for children with disabilities.
7. Step 6 – Determining Who Can Claim
In most situations, the lower-income spouse must claim the child care expenses.
However, the higher-income spouse may claim the deduction only if one of the following special conditions applies:
- The lower-income spouse is enrolled full-time or part-time in an educational program (documented by a T2202A form).
- The lower-income spouse is physically or mentally unable to care for the child (supported by a medical certificate).
- The lower-income spouse is confined to a prison or similar institution.
- The couple was separated for part of the year, and the higher-income spouse was the main caregiver.
In these situations, the higher-income spouse can claim the deduction, but they must indicate the applicable reason on Part C of the T778 form.
8. Step 7 – Supporting Documentation and Receipts
Even though you don’t submit receipts when e-filing, you must keep them for CRA review.
Each child care receipt must include:
- The name and address of the caregiver or institution;
- The caregiver’s Social Insurance Number (if it’s an individual);
- The dates and amount paid; and
- The names of the parents and the children.
If a caregiver is hired as an employee (such as a live-in nanny), a T4 slip must be issued, which serves as official proof of payment.
9. Step 8 – Entering the Final Deduction
After completing all calculations, the total allowable child care expenses are transferred from the T778 form to line 21400 of the tax return.
If the taxpayer’s expenses exceed the allowable maximum or the income-based limit, the excess is not deductible — it’s simply lost for tax purposes.
10. Quick Example
Let’s summarize with an example:
- Lower-income spouse earns $37,500 (2/3 limit = $25,000).
- Three children: two under 7, one aged 10 → Maximum limit = $21,000.
- Actual child care expenses = $20,400.
Because $20,400 is under both the age-based maximum ($21,000) and the income limit ($25,000), the family can claim the full $20,400.
If, however, the lower-income spouse earned only $18,500, then:
- ⅔ of $18,500 = $12,333 → That becomes the new maximum deductible amount.
Even if $20,400 was spent, only $12,333 would be deductible.
✅ Summary – Key Points to Remember
| Rule | Description |
|---|---|
| Form used | T778 – Child Care Expenses Deduction |
| Who claims | Lower-income spouse (except in special cases) |
| Maximum per child | $8,000 (under 7), $5,000 (7–16) |
| Income rule | Limited to ⅔ of lower-income spouse’s earned income |
| Earned income required | Employment or self-employment income |
| Boarding school/day camp limits | Weekly limits apply |
| Receipts | Must include caregiver details and SIN (if applicable) |
This form may look complicated at first, but once you understand the logic behind the limits and eligibility rules, completing the T778 becomes straightforward. As a tax preparer, always double-check that:
- The correct spouse is claiming the expenses,
- The children meet the age requirements, and
- Receipts include all required information.
Rules for Spousal and Child Support Payments (Canada)
When preparing a Canadian tax return, it’s important to understand how spousal support and child support payments are treated for both the payer and the recipient. While both involve financial support between former spouses or parents, the tax rules differ significantly depending on the type of payment.
Let’s break this down clearly and simply for beginners.
🔹 1. Understanding the Two Types of Support Payments
When a couple separates or divorces, one person may be required to make support payments to the other. These payments generally fall into two categories:
- Child Support – Payments intended to cover the cost of raising children (food, clothing, housing, etc.).
- Spousal Support – Payments made to help a former spouse maintain a reasonable standard of living after separation or divorce.
🔹 2. Tax Rules for Child Support
- Child support is not taxable to the person receiving it.
- Child support is not deductible for the person paying it.
In other words, the parent who pays child support cannot claim it as a deduction, and the parent who receives it does not include it as income on their tax return.
This rule has been in place for many years and simplifies tax filing for separated parents.
Example:
If Alex pays Jamie $10,000 in child support during the year,
- Alex cannot deduct $10,000 from income.
- Jamie does not report $10,000 as taxable income.
🔹 3. Tax Rules for Spousal Support
Spousal support is treated very differently:
- Taxable to the person receiving it.
- Deductible for the person paying it.
This means that:
- The payer can claim the total amount of spousal support paid as a deduction on their tax return.
- The recipient must report that same amount as taxable income.
Example:
If Chris pays Taylor $12,000 in spousal support during the year:
- Chris deducts $12,000 from taxable income.
- Taylor reports $12,000 as taxable income.
🔹 4. Legal Agreement Requirement
For spousal support payments to qualify as deductible (and taxable to the recipient), there must be a written agreement or court order in place.
This agreement should clearly specify:
- That the payments are spousal support, not child support.
- The amount and frequency of payments.
- The effective date when the support began.
If no formal agreement exists, or if the payments are informal or voluntary, they do not qualify for deduction or taxation.
Tip: Always keep a copy of the signed separation or divorce agreement, as the CRA may request proof if a spousal support deduction is claimed.
🔹 5. Reporting Support Payments on the Tax Return
Both types of payments are reported on the tax return, even though their tax treatment differs.
Here’s how it works:
| Type of Payment | Reported by | Line (Recipient) | Line (Payer) | Tax Treatment |
|---|---|---|---|---|
| Child Support | Both | Line 156 (as part of total support) but not taxed | Line 230 (as total paid) but not deductible | Non-taxable / Non-deductible |
| Spousal Support | Both | Line 128 (taxable income) | Line 220 (deduction) | Taxable to recipient / Deductible for payer |
Even though child support isn’t taxable, it still appears on the return because it helps the CRA assess eligibility for benefits and credits that depend on total income (like the Canada Child Benefit or GST/HST credit).
🔹 6. When Both Child and Spousal Support Are Paid
In many cases, a payer provides both child and spousal support.
In such cases:
- The total of both payments is reported as “support payments” (on line 156 for the recipient, line 230 for the payer).
- But only the spousal portion is taxable or deductible.
Example:
If a person pays $24,000 total — $12,000 for spousal support and $12,000 for child support:
- They can deduct only $12,000 (the spousal support portion).
- The recipient includes only $12,000 as taxable income.
However, the full $24,000 is reported on the return for information purposes.
🔹 7. Why Report Non-Taxable Child Support?
Even though child support isn’t taxed, reporting it still matters.
That’s because total support payments received can affect:
- Canada Child Benefit (CCB)
- GST/HST credit
- Other income-tested benefits
By reporting it, the CRA gets a full picture of household income when determining these entitlements.
🔹 8. Summary Table
| Type | Deductible for Payer? | Taxable for Recipient? | Requires Agreement? |
|---|---|---|---|
| Child Support | ❌ No | ❌ No | ✔ Yes, to define the terms |
| Spousal Support | ✅ Yes | ✅ Yes | ✔ Yes, must be formal/court-ordered |
🔹 9. Key Takeaways for Tax Preparers
- Always confirm whether payments are child, spousal, or a combination of both.
- Ask for and review the separation or court agreement.
- Only spousal support that is court-ordered or written in an agreement can be deducted or taxed.
- Always report both types of payments — even when not taxable — as they affect other benefits.
✅ In Short
- Child Support: Non-taxable and non-deductible.
- Spousal Support: Taxable to the recipient, deductible to the payer (only with a valid agreement).
- Always report both types for CRA information and benefit calculations.
Understanding these basic rules ensures accurate tax reporting and helps you avoid CRA reassessments or missing out on deductions.
Example of How to Report Child and Spousal Support Payments on a Canadian Tax Return
Understanding how to report child support and spousal support payments on a Canadian tax return is an essential part of preparing personal income taxes. This topic often causes confusion for beginners — but once you understand the basic rules and how the CRA expects the information to appear, it becomes quite straightforward.
In this section, we’ll look at a practical example involving both the payer and the recipient, to show how support payments appear on each person’s tax return and why both must report them, even though only some amounts are taxable.
🔹 The Example: Mark and Nina
Let’s imagine two people, Mark and Nina, who are divorced.
Under their court agreement:
- Mark pays $1,200 per month in spousal support, and
- $2,000 per month in child support to Nina, who has custody of the children.
That means Mark pays a total of $3,200 each month, or $38,400 per year.
Now, let’s look at how this is handled for both sides — Mark (the payer) and Nina (the recipient).
🔹 1. Reporting for the Payer (Mark)
Mark is making two types of payments:
- Spousal support: $1,200 × 12 = $14,400 per year
- Child support: $2,000 × 12 = $24,000 per year
Although the total paid is $38,400, only the spousal support portion ($14,400) is tax-deductible for Mark.
Here’s how Mark reports it:
- On his tax return, Mark reports the total support payments made ($38,400).
- He claims a deduction only for the spousal support portion ($14,400).
This ensures that the CRA has a full record of all the support payments made, but only the eligible portion reduces his taxable income.
Why report both amounts?
Even though child support isn’t deductible, it must still be reported because the CRA uses that data for cross-verification with the recipient’s return. Reporting both ensures transparency and prevents discrepancies between the payer’s and the recipient’s filings.
Key takeaway for the payer:
- Total payments made: $38,400
- Deductible amount: $14,400 (spousal support only)
- Non-deductible amount: $24,000 (child support)
🔹 2. Reporting for the Recipient (Nina)
Now let’s look at Nina’s tax return.
She is receiving two types of support from Mark:
- Spousal support: $14,400 per year (taxable)
- Child support: $24,000 per year (non-taxable)
Here’s how Nina reports it:
- On her return, Nina reports all support payments received, totaling $38,400.
- However, only the spousal support portion ($14,400) is taxable income.
- The child support portion ($24,000) is not taxable, but still must be declared.
This distinction ensures her tax return correctly shows the full support she received (important for benefits), while only taxing the spousal portion.
🔹 3. Why Both Amounts Are Reported
Even though child support isn’t taxable and isn’t deductible, both parties still need to report all amounts paid or received.
Here’s why:
- It allows the CRA to match the payer’s and recipient’s returns.
- It ensures accurate calculation of income-tested benefits, such as:
- Canada Child Benefit (CCB)
- GST/HST Credit
- Provincial benefits or supplements
For example, although Nina pays tax only on $14,400 (spousal support), the CRA still recognizes that she receives a total of $38,400, which may affect the calculation of her benefits.
🔹 4. Summary of Reporting Rules
| Role | Type of Support | Amount (per year) | Tax Treatment | Where It Appears on the Return |
|---|---|---|---|---|
| Mark (Payer) | Spousal Support | $14,400 | Deductible | Deduction section (Line 22000) |
| Child Support | $24,000 | Not deductible | Reported under total support payments (Line 23000) | |
| Nina (Recipient) | Spousal Support | $14,400 | Taxable | Income section (Line 12800) |
| Child Support | $24,000 | Non-taxable | Still reported under total support payments (Line 15600) |
🔹 5. Importance of Legal Agreements
For any of these payments to be properly reported and recognized:
- There must be a written separation or court agreement that specifies:
- The amounts designated as child support and spousal support
- The start date of payments
- The frequency (e.g., monthly)
- The CRA often requests copies of these agreements if deductions are claimed.
Without a valid written agreement, the spousal support deduction may be denied, even if payments were actually made.
🔹 6. Common Mistakes Beginners Should Avoid
- Claiming informal payments – Only payments under a formal written or court agreement qualify.
- Mixing up child and spousal support – The tax treatment is different; make sure you know which is which.
- Failing to report non-taxable amounts – Even if it’s non-taxable (like child support), it must still be reported.
- Forgetting benefit impact – Reported amounts can affect benefits like CCB or GST/HST credits.
🔹 7. Quick Recap
| Support Type | Payer | Recipient |
|---|---|---|
| Child Support | ❌ Not deductible | ❌ Not taxable |
| Spousal Support | ✅ Deductible | ✅ Taxable |
| Both Must Report Total Paid/Received | ✔ | ✔ |
✅ In Short
In our example:
- Mark reports $38,400 total paid, but deducts only $14,400 (spousal support).
- Nina reports $38,400 total received, but pays tax on only $14,400 (spousal support).
Both must keep documentation of the court or separation agreement and ensure amounts match between both returns.
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