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Financial Issues This forum is for discussing any of the financial issues involved in your divorce.

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Old 03-09-2006, 09:35 AM
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Default Day care expenses - Deductions - Tax Season

Ok, I went to do my taxes and was under the impression that I could claim half the costs of daycare - well considering I'm not claiming a dependant (she is) I can't claim the daycare.

So how does one figure the 'after tax costs' of daycare? For instance - our daycare is $7800 / year, it's suppose to be split 50/50 after tax (net costs). But where is the calculation on this - because her tax refund isn't going to show just the daycare amounts... any help? (right now I'm paying half before tax costs)
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Old 03-18-2006, 11:35 PM
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Thats a GREAT question ... I was not even aware that daycare expenses could be reduced when taking the tax credit into account. I'd like to know what the formula use to calculate it is?

Apparently from what I've gathered, the spouse that pays the daycare costs claims it on the taxes ... however, the paying spouse can reduce their contribution to daycare expenses when the other spouse it claiming the tax credit.

So where is this formula? I'll just wait on my trusted LV search engine!

Ya know if we marketed the LV Search engine ... we could make a ton of money!

Hubby
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Old 03-19-2006, 04:05 AM
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You would only contribute your share of the after-tax costs of daycare, which can be substantially less than the before-tax costs.

Lawyers have a computer program that calculates this all automatically for them. If you've got a lawyer, it's probably best to ask them to calculate this.

There's a workbook for this on the Department of Justice web site at:
http://canada.justice.gc.ca/en/ps/su...childcare.html

I note that the tax year used is 2000, so it's a bit out of date. But it's still probably useful as tax rates haven't changed that much over the years. It will give you a rough idea of the tax savings for various amounts of child care expenses paid, depending on the recipient's income and the number of children.
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Old 03-19-2006, 08:30 AM
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Hey LV ... Jeff's muscling in on your search engine reputation!

Thanks Jeff, I'll check it out.

Hubby
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Old 03-20-2006, 12:41 PM
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It's monday .. correct me if I'm wrong...

So these charts are saying that if she makes $50,000 and the daycare costs for the year are $5000 then she'll get back $1731 - which would mean the after tax costs for daycare is $5000 - $1731.

What is the income based on - Total Income (gross) or Total Net Income?
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Old 03-20-2006, 01:16 PM
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I answered my own question about income - it's line 150. (gross)

Another question about this:

"Under the new Choice in Child Care Allowance, all families will receive $1,200 per year for each child under six, to be taxable in the hands of the spouse with the lower income."

Let me work with my original numbers here: Daycare is $7800/year, her income is between $45k & $55k so $2423 for one child. She gets $1200 towards daycare.

So would the figures for net daycare costs be $7800 - $2423 - $1200
$4177/year
$348/month

which in 50/50 would be:

$2088/year each
$175/month each

Is this right?! That means my payment for daycare would go from $325/month to $175?! I could actually buy some food for myself again with that $150/month! I'm probably doing something wrong though. (as that would mean the government pays for almost half of the daycare)
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Old 03-20-2006, 04:29 PM
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Cats,

Heres how I read it ...

Take the number of children you have, find the chart, go down the left column until you find how much you have spent on daycare expenses, go across until you find your gross income ... that will list the amount of tax relief.

So in your case ...

"Let me work with my original numbers here: Daycare is $7800/year, her income is between $45k & $55k so $2423 for one child. She gets $1200 towards daycare."

It would be 7800-2423 (-1200 not sure about that one) = 4177 per year.

NOW, the amount you would pay would be based on a percentage of your total combined incomes (section 7 expeses are based on income percentages) ... IE lets say she makes 30G and you Make 80G ... so this gives you a combined income of 110G. Therfore @ 30G she payes 27% of the expense and you pay the other 73%.

30G times 100% divided by 110G = 27%
80G times 100% divided by 110G = 73%

Therefore she is responsible for 27% and you 73% of the 4177 per year expense.

This is my understanding.

So because your spouse has taken advantage of the tax credit, this amount is deducted from the total and the remainder is paid according to the income percentages above. I still dont see how this benefits one.

If you are in an already higher tax bracket, you'd want to claim the tax credit to reduce your income tax bracket and them split the difference?

Someone help me here ... could one negotiate that they'll pay the daycare costs, claim the credit to reduce their high income tax bracket and then pay out the diffence based on ones income percentage above????

Yeah, I'm rambling ... I do my best thinking that way!

Hubby
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Old 03-21-2006, 07:53 AM
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I was told by my accountant that unless I'm claiming my child as a dependant I can't claim the daycare costs.
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Old 03-29-2006, 12:34 PM
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Cats,

Found this ...

"Child care expenses can be deducted from income for tax purposes by the person who pays expenses while a child is under 17 years of age. The deduction is $7,000 per child under 7, and $3,000 per child age 7 to 16 (the deduction is available in the year the child turns 16)."

So yeah, if you are the payor and giving your spouse daycare expense amounts every month ... the receiving spouse who pays the daycare expense can claim it? BUT, what happens if you arrange to pay for the daycare expense instead of giving it to the spouse as a payor? Does this mean YOU can claim it?

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Old 03-29-2006, 12:36 PM
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Cats,

Found this too ...

"A parent who has a child living with him/her can claim a child under 18 as a deduction under the "equivalent to married" provisions, provided the parent is not cohabiting with another adult. This is a substantial tax saving. A parent who is paying child support for a child cannot claim that child under that deduction.

Seems PAYORS get _crewed!

Hubby
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