Tips on Using Your Home as a Daycare

The Canada Revenue Agency (CRA) recently released a new booklet that explains how to take business deductions from the income of a daycare. It’s an important issue for those who work taking care of children from their personal home as opposed to those who work taking care of children in the home of the parents.

The issue to be considered is whether the child care worker is an employee or an independent contractor. The status often depends on the relationship between the daycare provider and the parent(s).

The self-employed day care provider controls the number of hours they work, where they work, the materials they use in their work, as well as the way they carry out daycare duties. Home-based daycares will likely meet these criteria.

On the other hand, if the place of work, working conditions, and degree of control on how the work is carried out is primarily in the hands of the parent(s), the day care provider will likely be an employee.

For employees, the Canada Employment Credit provides some tax relief on the federal level for expenses of providing daycare services to their employer. In order to deduct out-of-pocket expenses, the employee must have a Declaration of Employment Conditions (Form T2200), signed by the employer, which certifies that the employee was required to pay those expenses as part of their employment agreement.

Some commonly claimed expenses for home daycare businesses include business use of home expenses, including proportional costs of utilities, property maintenance, and repairs; costs of supplies like blankets and proportional costs of food for the children; advertising; licensing; motor vehicle expenses; management; and administration fees.

Some people might not be aware that they can deduct amounts expended for training as well.

In addition, most daycare services are exempt from GST. Therefore, amounts should not be collected for this tax when accepting payment.

For more information, see your DFA-Tax Services Specialist and the new publication from CRA.