Temporary Relief for Claiming Child Care

Evelyn Jacks

There is exciting news for parents who have been prohibited from claiming child care expenses due to the existing definition of “earned income”.  A new Form T778 issued on January 20, 2021 clarifies that CERB and EI recipients can indeed claim child care expenses.  There is more good news for disabled employees, too. Here are the details:

Specifically, child care expenses are limited to the amounts actually paid, the dollar maximums for children under 7, those 7-16 and those who are disabled.  A third limiting factor is the structure of earned income for these purposes. 

Under new and proposed rules, earned income will include the following:

• Any federal, provincial, or territorial government COVID-19 payments received in the year for which you have received a T4A or T4E
• Under proposed changes for 2020 and 2021, Employment Insurance benefits, Employment insurance special benefits, and Quebec parental insurance plan benefits
• Employment income (including tips and gratuities, and the non-taxable part of an allowance received as an emergency volunteer)
• Net self-employment income, either alone or as an active partner (excluding losses)
• the taxable portion of scholarships, bursaries, fellowships and similar awards, and net research grants
• Any earnings supplement received under a project sponsored by the Government of Canada to encourage employment or sponsored under Part II of the Employment Insurance Act or any similar program
• Disability benefits received from the Canada Pension Plan or the Quebec Pension Plan
• Amounts received under the Apprenticeship Incentive Grant program and the Apprenticeship Completion Grant program, administered by Employment and Social Development Canada

The draft proposals referred to above intend to adjust the treatment of both child care and disability supports deductions to align the rules to allow EI recipients, CERB and other COVID-19 emergency income recipients to claim these expenses on the tax return.   

Finance Canada noted that the proposed changes would amend the Income Tax Act to temporarily allow Canadians receiving EI benefits  and Quebec Parental Insurance Plan benefits to make the same claims for the Child Care Expense Deduction and Disability Supports Deduction as COVID-19 income support recipients.

These changes will apply to income for 2020 and 2021.

Additional educational resources: help Canadians access credits and benefits, while remaining tax-efficient as a DFA-Tax Services Specialist™.