My advice would be to present her with an amendment to your agreement stating that a) going forward child support will be offset (wording has been suggested in previous posts), b) you will both provide confirmation of income once a year on a specific date for recalculation, c) what the new CS amount would be if she had an income of $21K. You can then move ahead with imputation if you choose (although do the math - how much additional money would you save if she had an imputed income of $40K vs $20K in an offset situation, and is that worth the time and effort?).
All the other stuff people are bringing up - whether her home daycare is licensed, is she reporting her income accurately to Ontario Works, etc - is not really your concern as a co-parent. If you have reason to suspect children are at risk of neglect or abuse in her home daycare, then you have to call CAS just like any person would. But beyond that, her financial arrangements aren't relevant to you.