Recent Enhancement of Child Care Tax Credit - Crowe BGK

Recent Enhancement of Child Care Tax Credit

Victoria Chen, M. Fisc., Erin Lesser, LL.B., J.D. and Jennifer Warner, LL.B., LL.M. Fisc.
2/17/2022
Recent Enhancement of Child Care Tax Credit - Crowe BGK

Families in Quebec and Ontario can benefit from a refundable tax credit, which reimburses a portion of the childcare expenses they pay. The credit is calculated by using eligible childcare expenses multiplied by the tax credit rates. The credit will then reduce taxes owed by an individual. This particular tax credit is refundable, any portion of the credit which exceeds taxes owing will be refunded to the taxpayer.

Eligible childcare expenses include babysitting services, day nursery services or services provided at a boarding school or a camp that were incurred in order for a taxpayer or his or her spouse to work, pursue studies or carry on a business.

Quebec

On November 25, 2021, the Quebec Minister of Finance introduced an enhancement to the tax credit in its publication, An Update on Quebec’s Economic and Financial Situation.

Starting in 2021, except for families with income between $21,000 to 43,880, all families will see an increase of the tax credit. Families with net income of $101,490 or more will see the highest increase of the credit. The highest rate of the credit is 78% for families with income of less than $21,000.

The childcare expenses limit which is used to calculate the tax credit has also been increased to reflect rising childcare costs. For a child under 7 years old at the end of 2021, the childcare expense limit increased from $9,950 to $10,400. That means up to $40 paid on childcare per day is eligible in calculating the credit, which results in more credit. For a child with disability, the limit increased from $13,615 to $14,230.

The table below presents the tax credit rates according to family incomes.

Increase in the rates of the refundable tax credit for child care expenses –
Current rates and enhanced rates 2021
(dollars, unless otherwise indicated)

Net income

Current Rates

Enhanced Rates

Net income

Current Rates

Enhanced Rates

Higher than

Not exceeding

Higher than

Not exceeding

21 000

75%

78%

46,635

48,000

67%

70%

21 000

37 030

75%

75%

48,000

49,365

66%

70%

37 030

38 400

74%

74%

49,365

50,755

65%

70%

38 400

39 780

73%

73%

50,755

52,120

64%

70%

39 780

41 135

72%

72%

52,120

53,490

63%

70%

41 135

42 515

71%

71%

53,490

54,855

62%

70%

42 515

43 880

70%

70%

54,855

56,235

61%

70%

43 880

45 270

69%

70%

56,235

101,490

60%

70%

45 270

46 635

69%

70%

101 490(1)

57% to 26%

67%

(1) In the current table, a plateau exists between $101 490 and $145 700 with a rate of 57%. The rate is then gradually reduced to 26% at an income of $165 030 or more.

As an example, a family with net income of $110,000 paid childcare expenses of $10,000 for a child in 2021. The refundable childcare tax credit is calculated as the tax credit rate (see the chart above) multiplied by eligible childcare expenses (up to the limit discussed in the previous paragraph). The family will receive a refundable tax credit of $6,700 ($10,000* 67%).

Ontario

In the Ontario 2019 budget, the provincial government introduced a new Ontario Childcare Access and Relief from Expenses (CARE) refundable tax credit. Eligible Ontario families can get a credit up to 75% of their eligible childcare expenses.

Beginning in 2021, the Ontario government provided a top-up of 20% of the credit. As a result, the tax credit rates shown below will automatically be increased by 20% when taxpayers file their personal income tax return for the 2021 year.

Ontario Child Care Tax Credit rate calculation

Family income

Rate calculation

Up to $20,000

75%

Greater than $20,000 and up to $40,000

75% minus 2 percentage points for each $2,500 (or part of) above $20,000

Greater than $40,000 and up to $60,000

59% minus 2 percentage points for each $5,000 (or part of) above $40,000

Greater than $60,000 and up to $150,000

51% minus 2 percentage points for each $3,600 (or part of) above $60,000

Greater than $150,000

0%

 

For more information, please contact your Crowe BGK advisor.