Day care expenses - Deductions - Tax Season

[CatvsLion]

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)

[hubby]

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

[Jeff]

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I note that the tax year used is 2000, so it's a bit out of date.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.

[hubby]

Hey LV ... Jeff's muscling in on your search engine reputation!

Thanks Jeff, I'll check it out.

Hubby

[CatvsLion]

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?

[CatvsLion]

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)

[hubby]

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

[CatvsLion]

I was told by my accountant that unless I'm claiming my child as a dependant I can't claim the daycare costs.

[hubby]

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?

Hubby

[hubby]

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

[catgirl]

Day care expenses

I just came back from Revenue Canada with the answer to your question.
I tried to claim child care expenses (that I paid directly to the day care) on a e-file tax program, however, I had to claim her as a dependant in order for the program to allow me to enter child care expenses. The program wouldn't allow me to NOT claim her as a dependant, but still claim day care.
I'm aware as a payor of child support, that I cannot claim a child as a dependant. So I went to Revenue Canada, and asked. What do I do when the software program won't let me do this. Her answer: File your e-file income tax return WITHOUT the child care expense, and without claiming her as a dependant. Then when you receive your refund, or you owe them, go to the Revenue Canada office with the child expense part of a revenue canada income tax form, with your receipts , and they will manually do the reassessment to give you a portion of your day care expenses back. If you don't want to go in person, she said you can fmail it separately, with a letter explaining you are not claiming the child as a dependant as you pay child support, but that you still had child care expenses to pay. You will need to provide copies of your day care receipts. The only problem with that way is she said it will take 6-8 weeks for you to get your refund. If you go in person, its automatically reassessed on the spot, and you don't have to give them a copy of your receipts.
Software programs are not set up to allow you to do this. If you claim day care expenses, the programs automatically claim that child as a dependant.
If you are doing your taxes manually, you can do it all at once, just that you'll have to submit all your receipts/paperwork.

Did any of this make sense?? I had to go in person to ask someone, because the Revenue Canada help line didn't know the answer either.

Catgirl

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)

[Decent Dad]

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?

Hubby

I do. I get my own tax receipt and make my own claim.

When you see a lawyer or mediator (or judge) they have software called Divorcemate which calcualtes thinsg a little more level since that software takes into account all these hidden tax breaks, etc. For example, if you make $80K and the ex makes $40K, it appears you make twice as much. But Divorcemate takes into account the differences in taxation brackets, the refunds based on e-t-s, and so on. That $40K person may actually find themselves to have more net income.

[Decent Dad]

Catgirl,

You are correct. You can claim the expense as long as you have a receipt.

Most $30 tax software does not perform the function correctly. It is better to do your taxes manually when you are divorced.

BTW, with so many tax questions, loophole upon loopholes in the tax laws, punishment to the payer, and so on, you would think we were the first people getting a divorce. But like the custody and access laws, we are almost living in fear to speak up.

[Deputy Daddy]

I used a program called U-File and it allowed me to claim daycare expenses, but not eligible dependant. It's not quite as slick as Quicktax but less expensive and did the job.

[Alextu]

Separated and paying daycare expenses

I separated this year....I haven't filed my 2008 income tax return because my ex never files on time and I need his income which he isn't keen on disclosing to me....anyway, my question is, he is self-employed and, in the past, has always claimed the daycare costs we paid ....he makes much more than me gross but you know the self-employed and deductions....I want to file my return as it is already late ..... can I claim my kids daycare costs....we were still together in the home in 2008 but living in separate rooms....we physically separated in May 2009..he left the home....I have been paying all the daycare costs this year but he has been paying me monthly CS ... but this does not include the "extra costs of child rearing" which would be the daycare, etc....he's supposed to be paying a portionate share which we still have not reached an agreement on as he's dragging his heels....I don't think I can claim my kids daycare on my 2008 return, can I? I'm assuming when I finally get to my 2009 return, I can claim these expenses....