When it comes time to claim expenses on your tax form, should you claim child care or medical expenses?
A bit of background first. If you have BI’s caring for your child and you control the invoices, you have the option of putting either “Child Care” or “Tutoring” as the service rendered. Conventional wisdom says that you should claim child care expenses to the maximum allowable ($11,000 for 2015) and the remainder as “Tutoring” which is a medical expense. The logic is that child care is a tax deduction (much like an RRSP) while medical expenses are only a tax credit.
It sounds logical, but is it true?
The answer is more complex than most people realize. Let’s have a look at the pros and cons of each claim.
Firstly child care:
- It’s a tax deduction which reduces your taxable income
- You may claim $11,000 (for 2015) or 2/3 of the income of the lower income spouse, whichever is less
- The Disability Tax Credit (DTC) supplement will be reduced if you claim Child Care in excess of $2,654 (2014 figure) or $2,507 without reducing the provincial supplement.
Next medical expenses:
- Firstly the non-refundable tax credit (i.e. it can’t reduce your tax below zero)
- Only expenses in excess of $2,208 (2015) or 3% of your net income whichever is less, can be claimed
- Refundable Medical Expenses (i.e. it can reduce your tax below zero)
- For 2015 the maximum supplement is the lesser of $1,172 or 25% of medical expenses.
- This is reduced by 5% of combined net in excess of $25.939. It is eliminated when combined net income reaches $49,379
- Many people focus on the 15% federal tax credit rate and don’t realize that there is also a provincial credit which may add another 5% to the total.
Next week, the answer that completely shocked me
2 thoughts on “Child Care vs Medical Expense – Part 2”
Can you claim child care expenses for days when you are not working? For example, if you are working during the week and have a therapy session on the weekend, does that still count as child care??
Good question. When you fill out the child care form yearly for your taxes, it does not ask you for specific timing with respect to child care and your employment. If you claim the weekend child care you should be OK.
Think about what child care really is. According to the CRA, child care is something that enables you to work. If you are working a night shift and have to sleep during the day, is daytime child care reasonable? Of course it is!
My opinion is that if you keep it reasonable, CRA will not question the claim. If you are a seasonal worker it may be pushing it to claim child care for the off season. Just be sensible and you should be fine.