Whether taxpayer has become a parent recently, or if they are simply going back to work after raising their children for several years, they often have questions for their Edmonton bookkeeping company. They often wonder if they are able to claim child care expenses on their personal tax return. And if they can, how much they are eligible to claim.
One of the first things that parents should take into consideration, is that not all expenses can be claimed on their income tax return. While Canada revenue agency allows for parents to claim expenses for things like a babysitter or daycare. And even boarding schools, or things like summer camp, or a they camp.
Parents who are sending their children to a regular school, or a typical educational institution. Cannot claim any of the expenses associated with regular schooling. Even for additional expenses such as books, uniforms, field trips or sports teams.
Another exception to claiming childcare. Is that parents cannot claim payments that were made to a direct relative for childcare. Whether they are getting their parents to look after their children according to Edmonton bookkeeping. Or if they are hiring their older child to watch a younger sibling.
Canada revenue agency does not allow direct relatives to be considered deductible childcare expenses for parents. However, more distant relatives such as ants and uncles, or nieces and nephews. Can have their childcare expenses deducted.
The thing that parents and the childcare provider needs to take into consideration. Is if the parents and up getting audited by Canada revenue agency. The childcare provider must provide their social insurance number. And they will need to have claimed the amount of money that they received as income on their own personal tax return.
Therefore, if the childcare provider did not claim the amount of money that they earned through childcare on their taxes. Or if they end up being a direct relative. Canada revenue agency will easily find out by running their social insurance number. Which could end up creating problems for everybody.
And finally, Edmonton bookkeeping says the childcare provider must also be a Canadian resident. And that also will be discovered by providing a social insurance number. If one of the parents ends up getting audited. Which is why it is extremely important for parents to be very mindful of the exceptions to what childcare expenses can be claimed.
The next question that many parents have when they are doing their taxes for the first time after putting their children into childcare. Is how much money they can claim on their personal tax return as expenses.
While many parents assume that they can claim the entire amount that they have paid. This is not accurate. The amount of money that they can claim is dependent on their income. And cannot exceed two thirds of their income.
Even if the higher income earning parent is claiming the childcare expenses. It cannot exceed two thirds of the income of the lower income earning parent.
Because of these difficulties. Parents who are claiming childcare expenses for the first time. May find it very beneficial to get their Edmonton bookkeeping company to do their tax return on their behalf. So that they do not make critical errors that could cause them problems.
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When it comes to the person doing their personal tax return, Edmonton bookkeeping says claiming is many expenses as possible. Can be very beneficial in keeping the taxes that they owe at the end of the year down.
The reason why this is so important, is because the average Canadian pays approximately 43% of their entire income in a variety of taxes. Including CPP, EI and income tax. But also includes various taxes such as fuel tax and GST.
However, knowing what expenses they can claim. And how much they can claim can be a bit of the complex issue. Especially when it comes to claiming childcare expenses on their personal tax return.
The amount of money that they can claim is based on how much money the lower income earning parent earns. As well and the age of their children.
However, there are exceptions to this rule. And parents can claim two thirds of their own income if they are higher income earning parents. If they meet one or more of these following exceptions.
A great example of one exception is if the parents are separated. Which by Canada revenue agency’s definition, being separated means that they need to be separated for a period of ninety days within that tax year.
Another exception to the rule, allowing the higher income earning parent to claim childcare expenses that are two thirds of their income. As if the lower income earning spouse is in prison.
If one of the parents is attending school, the higher income earning parents can claim child care expenses. And the school can be full-time or part-time. That it must be school that is attended for three consecutive weeks within that tax year. For a minimum of ten hours per week.
And finally, if the lower income earning parent is unable to care for the child due to a disability that they have. Whether it is a long-term disability, or short-term disability.
Such as taking ill and ending up in the hospital for several weeks. Or if they have been confined to a wheelchair for some reason.
If these exceptions are met, Edmonton bookkeeping says the higher income earning parent can claim the childcare expenses, using two thirds of the higher income as the threshold for expenses that can be claimed.
However, these exceptions are complex. And not only can it be very difficult for the parents to remember the exceptions. It also is difficult for them to remember how much they can claim per child based on the child’s age.
Which is why it can be best for parents to hire their Edmonton bookkeeping company to do their personal tax return. So that they do not and making mistakes that could have them owing more taxes are on.