DAYCARE BUSINESS
Distinguishing business income from ‘other employment income’:
If a person provides care for children part time or from time to time and it’s impossible to tell how long and steady the work is going to be, the CRA advises that the income should be reported as Other Employment Income (casual income), not business income.[1]
Receipt should include provider’s SIN:
Parents doing an individual tax return can deduct child care expenses to lower their tax but to do so they need an invoice that includes the provider’s SIN number.[2] For that reason the CRA expects self-employed individuals providing daycare services to issue receipts with their SIN included.[3]
Include grants as income:
If a subsidy or grant is received, for example under the Canada-Wide Early Learning and Child Care (CWELCC) system, the amount is included as income.
No HST registration:
Child care services for children age 14 and under, for periods normally less than 24 hours per day, is an exempt supply under the Excise Tax Act.[4]
If child care services are a person’s only business, they generally cannot register for HST, regardless of how much child-care income is earned, because child care services are exempt supplies. Therefore input tax credits (i.e. HST) cannot be recovered on expenses incurred to provide those services. In general, you cannot register for HST if your business provides only exempt supplies.[5]
Food:
For food provided to children in care, 100% of the food expense can be claimed, not just 50%. The expense is claimed on Line 8811 of T2125 (Office stationery and supplies).
Business-use-of-home expenses:
Expenses must be in proportion to use. If, for example total home expenses are $10,000 for the year, and a person used 50% of the house for 10 hours a day, weekdays only, for 35 weeks of the year, and the rest of the time the house is used or could be used personally, the calculation would be:
50% x (50 hours per week/168 hours per week) x (35 weeks/52 weeks) x $10,000 = $1,001.
References:
[2] Income Tax Act, s.63(1): a parent may deduct childcare expenses if.. “the payment of which is proven by filing with the Minister one or more receipts each of which was issued by the payee and contains, where the payee is an individual, that individual’s Social Insurance Number…”.
[4] Excise Tax Act, Schedule V, Part IV, s.1
[5] Excise Tax Act, s.240(3)(a) and s.123(1) definition of commercial activity. See also RC4022.