Home child care provider taxes: income, expenses and receipts

Self-employed or employee

The CRA ties your status to how much control a parent has. You are generally self-employed if you control your working hours, where you work, the materials you use and how you carry out the care. You are generally an employee if a parent sets the work, the hours and supervises you. Employees cannot deduct daycare expenses.

Occasional or part-time care that cannot be predicted is treated differently: the CRA says to report it as other employment income, without business expenses. If you are paid through an agency or have received a slip, check how the income is described before choosing how to report it.

What counts as income and where it goes

Gross income includes everything you receive for providing care in the year. That includes what parents pay you and any government subsidy or grant paid for looking after the children. A grant used to buy daycare property is not income. It reduces the property’s capital cost.

Self-employed providers can use Form T2125 with industry code 624410 for daycare, enter gross income at amount 3A, and report the net result on line 13500 of the return. The CRA says income is calculated on a fiscal-year basis using the accrual method. In practice, record each child’s fees by month, including amounts still owing at year-end.

Issue receipts parents can use

Parents rely on your receipt to claim the child care expense deduction, which is described in a separate article. The CRA expects you to issue them promptly so parents have time to file. Each receipt shows the parent’s name, the child’s name, the amount received, the service period, your name and address, your social insurance number, your signature and the date you signed.

If a parent has more than one child with you, issue a separate receipt for each child. A receipt should match your own records, so work from your deposits and attendance notes rather than memory. A reconciliation each December saves repeated corrections in March.

No GST/HST on your fees

Daycare is exempt from GST/HST when three conditions are met: the care and supervision happen in your home, every child is 14 or under, and the care usually runs for fewer than 24 hours at a time. When your services are exempt you cannot add GST/HST to what you charge.

This is a different rule from the small-supplier test, which applies to taxable sales. If you also sell something taxable, such as a separate course, ask an accountant how it fits. Do not assume the exemption covers other activities.

Deductions that commonly apply

The general rule is that you can deduct reasonable expenses incurred to earn daycare income, kept separate from personal costs. The CRA lists advertising, business-use-of-home, licences and memberships, capital cost allowance, field trips, management and administration fees, vehicle expenses, office expenses and supplies, professional fees, repairs and maintenance, wages and travel.

Food you buy for the children, toys, books, crafts and household supplies the children use, such as diapers, blankets and towels, are reported together on line 8811. Furniture and equipment are not deducted at once. Most fall into Class 8 at 20% a year, and you can claim only the business share. Cellphone air-time is deductible for the business share only, and childcare courses may qualify. Tuition paid to a university or college is not a business expense.

Claiming part of your home

You can claim home expenses if the space is your principal place of business, or if you use it only to earn business income and use it regularly to meet clients. Where rooms are shared with family life, the CRA’s method multiplies the business hours divided by 24 by the business portion of household costs. If you work only part of the week or year, the claim is reduced accordingly.

For example, suppose 60% of your home is used for daycare for 10 hours a day, and household costs are $14,000. Ten hours is about 42% of a day, so the share is roughly 25%, or about $3,500. That is illustrative only; real claims depend on the days you operate and the costs you can include.

The deduction cannot create or increase a loss, but unused amounts carry forward. Claiming capital cost allowance on your home can create capital gains and recapture issues when you sell, so discuss it before choosing.

Assistants, payroll and records

If you hire an assistant as an employee, you must deduct CPP contributions, EI premiums and income tax from pay, and pay the employer shares. You will also need a payroll account and must file T4 slips. Our payroll service can help with the setup if you are considering it.

Organize bills, receipts, bank statements and cancelled cheques by year, and add attendance and fee records that back up the receipts you issue. As a rule, the CRA expects records to be kept for six years after the end of the last tax year they relate to.

Dates, payments and when to ask for help

For most self-employed people, your 2026 return is due June 15, 2027, but any balance is due April 30, 2027. Instalments can apply if your net tax owing is more than $3,000 in 2026 and above that in 2025 or 2024. You also pay CPP on your net earnings through the return.

The CRA can charge a penalty when you leave out $500 or more of income and also left out income in any of the three previous years. Bring last year’s return, fee records, receipt copies, expense totals, a floor plan with room sizes and your home costs to your first meeting.