Tax savings for summer camps—how to claim the child care expense deduction

When summer gets into high gear, families with young children know about the costs associated with summer camps—not to mention the logistics of getting kids to and from camp, making lunches, and all the other juggling.

With the end of the federal Children’s Fitness and Arts credits, effective the 2017 tax year, families lost access to a tax-saving tool. But if parents still receive tax receipts from summer camp providers, they may be able to access another tool: the child care expense deduction (CCED).

Breaking down the CCED

To be eligible for the CCED, expenses must be incurred for providing childcare to an eligible child so that the taxpayer or a supporting person can take on specific activities. Let’s define each key term:

• An eligible child is a child of the taxpayer or the taxpayer’s spouse or common-law partner. It can also be a child who’s dependent on the taxpayer or the taxpayer’s spouse, and whose income doesn’t exceed the basic personal amount. In all cases, the child must be under 16 or have a mental or physical infirmity.
• Specific activities may include employment, carrying on a business, research funded by a grant, or attendance at a designated educational institution.
• A supporting person lives with the taxpayer and is either the taxpayer’s parent, spouse, or common-law partner, or another person who can claim a tax credit for the child under section 118 of the Income Tax Act (Canada). 

The maximum annual childcare expense amount for a child not eligible for the disability tax credit is:

• $8,000 for each child under age 7 at the end of the year
• $5,000 for each child age 7 or older at the end of the year and under 16 at any time during the year
• $5,000 for each child age 16 or older throughout the year, with a physical or mental infirmity, and is dependent on the taxpayer, or the taxpayer’s spouse or common-law partner. 

The maximum amount available for a child eligible for the disability tax credit is $11,000. Generally, the lower-income caregiver must claim the deduction and unused amounts can’t be carried forward.

Weekly limits apply for children registered for overnight camps and boarding schools. Those limits are:

• $200 per week for each child under age 7 at the end of the year who doesn’t qualify for the disability amount
• $125 per week for each child age 7 or older at the end of the year and under 16 at any time during the year. This amount also applies for children 16 and over with a physical or mental infirmity and dependent on the taxpayer, or the taxpayer’s spouse or common-law partner, but who can’t claim the disability amount. 
• $275 per week for each child who qualifies for the disability amount.

What’s a childcare provider?

Many parents may already be aware that payments to an eligible childcare provider, a day nursery school, daycare centre, or educational institution that provides childcare services (e.g., before- and after-school care) can be eligible expenses. But what many don’t realize is that payments made to a day camp, sports school, boarding school, or camp (including a sports school where lodging is involved) may also be eligible expenses.

In Income Tax Folio S1-F3-C1 (Child Care Expense Deduction), Canada Revenue Agency (CRA) outlines some criteria it considers when determining whether day camp (including day sports school) fees may qualify as childcare expenses. First, they must provide sufficient childcare service. Normally this applies to day camps, as they’re typically responsible for the children’s basic protection and safety (which qualifies as childcare service) while also providing activities and instruction that enrich the program. Other factors that are considered include:

• ages of the children
• instructors’ qualifications
• extent that educational progress is measured
• time devoted and program duration
• training and education facilities used.

Summer camps for children, including camps that provide overnight lodging, typically align well with CRA’s criteria. However, the child care expense deduction can’t be used for all expenses that may have been eligible under the fitness and arts credits. Fees related to the following activities are typically denied:

• after-school gymnastics
  
• dance, tennis, riding, and music lessons
  
• sports (e.g., baseball and soccer leagues)
  
• annual registration for Scouts or Guides.
  

These activities (the list isn’t exhaustive) are recreational in nature and any childcare is considered incidental. Even though not all fitness and arts activities may qualify as childcare expenses, there are a couple of benefits this deduction has over those credits:

• Higher deduction limits – Fitness and arts credits were capped at $1,000 and $500, respectively, at their peaks. The annual limits for the child care expense deduction range from $5,000 to $11,000, depending on the age of the child and if the child is disabled.
• Greater tax savings – The credits provided a tax savings at the lowest federal tax rate (15%), whereas a tax deduction provides tax savings at the taxpayer’s marginal tax rate. If the taxpayer claiming the child care expense deduction has a federal tax rate greater than 15%, they may experience more tax savings than they would have if they claimed the same expenses for either the fitness or arts tax credits.

Summer is the best time of year for many kids—with no school, great weather, and two months to just be kids. For parents, summer can be expensive and a planning challenge. The child care expense deduction can be a saving grace, so keep those summer camp receipts for tax time.

Tax tips:

• The CCED is a tax deduction, meaning it reduces your taxable income, saving tax at your marginal tax rate.
• Generally, childcare expenses must be claimed by the lower income earner.
• Keep all receipts related to childcare expenses paid throughout the year (including summer camps) for your tax return.