Tax Tip Thursday

Childcare Expenses and Separation (Canada)

Normally, childcare expenses must be claimed by the lower-income spouse. However, when a couple separates during the year, the rules change depending on the timing of the separation.

Before Separation:

For the period of time when spouses were living together, the lower-income spouse is required to claim all eligible childcare expenses. This rule applies regardless of which spouse actually paid for the childcare.

After Separation:

Once spouses are considered separated (generally after living apart for at least 90 days due to a breakdown in the relationship), the lower-income rule between spouses no longer applies. Each parent may claim only the childcare expenses they personally paid, only for the period after separation, and only for the time during which the child resided with them.

Custody Considerations:

In shared custody arrangements, each parent can claim the childcare expenses they paid that relate to their period of custody. In primary custody situations, the parent with primary care will typically claim most or all childcare expenses after separation, unless the other parent has directly paid for specific childcare costs.

Restrictions:

The same childcare expense cannot be claimed by both parents. Claims must be supported by receipts that clearly show who paid for the childcare and the dates of care. Additionally, expenses must be incurred to allow the parent to work, carry on a business, or attend school.

Example:

If a couple is together from January to June, the lower-income spouse claims all eligible childcare expenses for that period. If they separate in July, each parent claims the childcare expenses they personally paid from July to December, based on their custody arrangement.

Planning Considerations:

After separation, there is flexibility in determining who claims childcare expenses, since the lower-income rule between former spouses no longer applies. This creates an opportunity to plan which parent pays for childcare in order to maximize tax savings.

Audit Risk:

Childcare expenses are commonly reviewed by the CRA, particularly in years where a separation has occurred. It is important that claims align with actual payments, custody arrangements, and supporting documentation such as receipts and bank records.

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Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.