Accounting for childcare providers.

Questions worth getting ahead of

• Deciding whether you are self-employed or an employee of the parents
• Knowing why childcare fees are generally free of GST/HST
• Issuing a separate receipt for each child
• Reporting parent fees and subsidies together as income
• Keeping records that support daycare expenses

Check whether you are self-employed before you claim expenses

The CRA says a daycare provider is generally self-employed when they control the hours they work, the places they work and the materials they use, and the way the care is carried out. If a parent specifies the work, sets the hours and supervises you, you are generally an employee and cannot deduct daycare expenses. Part-time or occasional care where it is impossible to tell how long or steady the work will be is treated differently again. Because the answer changes how income is reported and what you can deduct, describe your arrangements to an accountant before the first return rather than after.

Fees are generally free of GST/HST, which affects what you can recover

According to the CRA, home daycare is free of GST/HST when you care for children in your home, all the children are 14 years of age or under, and the care is usually for periods of less than 24 hours a day. When your service is free of GST/HST, you cannot add the tax to your fees. Under the CRA’s general GST/HST guidance, you also generally cannot claim input tax credits on purchases used to provide exempt services. The test looks at the primary purpose of each arrangement, so a program that is mostly instruction, or a service that only finds care for parents, can be treated differently. Bring your program descriptions and fee schedules.

Report all daycare income, including subsidies

Self-employed daycare income is reported as business income, and the CRA asks for it to be calculated by fiscal year using the accrual method. Gross income includes payments from parents and subsidies such as provincial or territorial grants for caring for children. A grant used to buy a daycare property is handled differently: it reduces the capital cost of the property instead of being income. Keep a running record of every fee, subsidy payment and parent deposit, and match it to the receipts you issue so that the total on your return can be explained if the CRA asks.

Issue complete receipts for each child

The CRA expects daycare providers to issue receipts to the parents of the children in their care, as soon as possible so that parents can file their returns. A receipt should show the parent’s name, the child’s name, the amount received, the dates of the period covered, your name, address and social insurance number, your signature and the date you signed. A parent with more than one child in your care needs a separate receipt for each child. A simple receipt template and a monthly habit of recording payments by child will make year-end far easier than rebuilding the information from bank statements.

Know which daycare expenses are deductible and keep the paper

The CRA lists the deductible categories for a home daycare, including business-use-of-home expenses, field trips, supplies, repairs and maintenance, motor vehicle expenses, capital cost allowance, professional fees, and salaries and benefits for staff. The home-related claims and any vehicle use depend on how much of the space or driving is for the business. Keep original receipts, invoices, bank statements and contracts, organized by year, and do not send them with your return. Tell your accountant if you employ an assistant, since payroll adds its own registration and reporting duties.

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