There are various Canada Revenue Agency (CRA) tax forms you can use to claim deductions to reduce your taxable income while saving more on taxes: the T778 is one such form. Here's what you need to know.
What is form T778?
Also known as the Child Care Expense Deduction, the T778 is only available to taxpayers with an eligible child or children. It features various parts that allow you to claim child care expenses; however, the T778 shouldn't be mistaken for a tax credit. It is a deduction that can significantly reduce your total tax owed. Below is a quick overview of the T778 form, including who should fill it out and the expenses you can claim. The form features four main parts, as follows:
Part A – Total Child Care Expenses
This is where you enter the total child care expenses you have incurred during the tax year for which you're claiming deductions. In this section, you can enter the first name, last name, and birth date of all eligible children. You will also enter the expenses paid and the name of the child care organization or name and social insurance number of the individual who received the payments. Other entries include the number of weeks spent in boarding schools and overnight camps, and a separate entry for total expenses paid on eligible children 6 years or younger at the end of the tax year.
Part B – Basic Limit for Child Care Expenses
If you live with another person (most commonly a spouse or common-law partner), the lower net income earner must claim the child care expenses deduction except in certain specific circumstances (see Parts C and D below for these). If you're the lower net income earner and none of these circumstances exist for you, Part B is where your allowable deduction will be calculated.
Enter the number of children that fall into each of the three basic limit amounts. These amounts differ depending on the age of your children and whether the disability amount can be claimed for them and/or if they have an impairment (but can’t claim the disability amount). The total basic limit is tallied up. The amount of the deduction is the lesser of the total basic limit, the total of your child care expenses, and two-thirds of your earned income.
Part C – Person with the Higher Net Income
As the title suggests, this section is left to the person with a higher net income. The cases that allow those with higher net incomes to claim the child care expenses deduction include when the lower net income partner was enrolled in school, physically or mentally impaired, imprisoned, or if you were apart due to a breakdown in your relationship and were so for at least 90 days in the tax year but reconciled before March 2 of the following year. Essentially, these are the scenarios the CRA considers eligible for higher net income persons to claim the T778 deductions.
Part D – For Those Enrolled in an Educational Program
This section is reserved for two unique situations. The first is if you are the only person paying for the eligible child and enrolled in an educational program in the same year. The second is if you are the person with a higher net income and both you and another person are enrolled in an educational program. Part D doesn't apply to the person with the lower net income. The person with the higher net income must also fill out Part C before completing Part D.
Who can claim child care expenses?
Only eligible persons can claim T778 deductions. If you are the only one making payments for the child, you will fill out Parts A, B, and, if applicable, D. On the other hand, if you live with another person, they can claim the deductions if they are the eligible child's parent. They can also claim deductions if they are your spouse or common-law partner, but only if you are the child's father or mother. They also have to be low net income earners. An individual claiming deductions for the eligible child on lines 30400, 30425, 30450, or 30500 of their return can also fill out T778.
Essentially, if you support an eligible child below 16 years of age, you can fill out form T778 to report the total expenses spent. Form T778 is typically filled out by the person with the lower net income; however, the CRA recognizes circumstances where the person with the higher net income can claim the expenses.
What payments can you claim?
Taxpayers supporting eligible children can claim the following payments:
Caregivers providing child care services
Day care centers and day nursery schools
Day camps and day sports schools with a primary goal of caring for the children. This doesn't apply to institutions with sports study programs.
Overnight sports schools and camps that including lodging
Boarding schools
Educational institutions like private schools. Only the tuition portion related to child care services is reported.
What payments can't you claim?
Form T778 isn't designed for some expenses, which may be covered in other tax deduction slips. You cannot claim payments made toward the following:
Clothing, transportation, and medical/hospital care
Regular program tuition, sports study programs, and fees related to standard educational costs at an educational institution
Fees for leisure and recreational activities, such as annual scout registration and tennis lessons
Form T778 also doesn't allow taxpayers to claim child care expenses that have been reimbursed or are entitled to be reimbursed or other benefits excluded from their income. When filing for a person who died during the tax year, you can claim child care expenses for that person as if they were the only person supporting the child, even if they were living with another person. The other person can also claim the child care expenses paid while living with the child as if they were the only person supporting the child so long as the expenses haven’t been claimed by another person (aka the deceased person). The T778 might be a tad complicated, so it is always recommended to hire experienced tax specialists to help you claim maximum deductions or use a tax preparation software that will walk you through these complexities with a series of questions.
