Reduced Child Care Fees: Tax Consequences & Social Impact

Evelyn Jacks & Beth Graddon

How has $10 a day child care impacted the ability for young families to build wealth?  The answer is found in an interesting report recently released by the federal government.  The new supports funded by both federal and provincial governments will also impact after-tax results.

The May 12 news release from Employment and Social Development Canada announced that the federal government signed amendments to the Canada-wide Early Learning and Child Care Agreements with all provinces and territories, in order to provide an additional $625 million in federal funding earmarked to create more child care spaces and bring affordable child care to underserved communities. Details on how these funds will be allocated have yet to be announced.

Budget 2024 also introduced the Child Care Expansion Loan Program, which provides $1 billion in funding to help not-for-profit and public childcare providers create more space. As we await the details and results of these new programs, it is promising to see that initiatives so far have had a positive social impact, with a record high number of women in the workforce, which now sits at 85.7%.

The tax consequences of reduced child care costs.  The child care expense deduction reduces net income, the figure on which refundable and certain non-refundable tax credits are calculated.  When child care costs go down, so do these credits, which is a surprise to some parents.  Taxes can also go up; together with quarterly tax instalment remittances, depending on the circumstances.

For these reasons, changes in a big deduction like child care expenses must be understood so that the net cash the household has to use – after paying lower child care dollars – is not lower after tax.  

Make a Difference.  Be sure to understand the net affect of reduced child care costs on the after tax outcomes for your families – higher taxes and lower family refundable tax credits can be righted with a FHSA or RRSP deduction.  Talk to your tax and financial advisors about this.

Professionals:  Subscribe to the Tax Tip Toolkit for quick and easy “what if” calculations.  The Tax Tip Toolkit can also provide non-verifiable CE Credits for professional re-licensing purposes.