Guide to T778 Child Care Expenses Deduction

What Is Form T778?

Form T778, Child Care Expenses Deduction, is published by the Canada Revenue Agency (CRA). You complete it and attach it to your T1 income tax return to claim a deduction for amounts you paid to have someone look after your eligible children so that you and your spouse or common-law partner could earn income, attend school, or conduct research.

The child care expenses deduction reduces your net income, which in turn lowers the amount of tax you owe. It is one of the most valuable deductions available to Canadian families with young children, and it is worth understanding the rules to claim every dollar you are entitled to.

Who Can Claim?

In most cases, the spouse or common-law partner with the lower net income must claim child care expenses. This is a specific rule in Canadian tax law. However, there are exceptions that allow the higher-income spouse to claim, including situations where the lower-income spouse was:

• Enrolled full-time or part-time in a qualifying educational program at a designated educational institution
• Unable to care for children due to a mental or physical infirmity
• Confined to a prison or similar institution for at least two weeks during the year
• Living apart from the higher-income spouse due to a relationship breakdown for a period of at least 90 days

If you are a single parent, you claim on your own return. If you share custody, each parent claims the expenses they personally paid.

Which Expenses Qualify?

Eligible child care expenses include payments to:

• Licensed daycare centres and nursery schools
• Licensed or unlicensed home-based daycare providers
• Caregivers such as nannies, babysitters, and au pairs
• Day camps and day sports schools
• Boarding schools, overnight camps, and overnight sports schools (subject to weekly limits)
• Educational institutions for the portion of fees relating to child care services

Expenses that do not qualify include medical or hospital care, clothing and transportation costs, private school tuition unless it includes a specific child care component, payments to someone under 18, payments to the child's parent, and payments to anyone for whom you or another person claimed a dependant amount.

Annual Limits Per Child

The deduction is limited on a per-child basis:

• $8,000 per child under 7 at the end of the tax year
• $5,000 per child aged 7 to 16 at the end of the tax year
• $11,000 per child eligible for the disability tax credit, regardless of age

For overnight camps, boarding schools, and similar programs, weekly limits apply: $200 per week for children under 7, $125 per week for children 7 to 16, and $275 per week for children eligible for the disability tax credit.

Your total claim is also limited to two-thirds of the claiming person's earned income. Even if your expenses exceed the per-child limits, you cannot deduct more than two-thirds of the qualifying income.

Step-by-Step Guide to Completing Form T778

Part A: Identification

Enter your name, social insurance number, and the name and SIN of your spouse or common-law partner if applicable. Both partners' information is needed to determine who should claim.

Part B: Children's Information

List each child for whom you are claiming expenses. Include their name, date of birth, and whether they qualify for the disability tax credit. The form uses this to calculate maximum limits per child.

Part C: Expenses Paid

For each child, enter the total child care expenses you paid during the year. You must have receipts showing the care provider's name, address, SIN or business number, the dates of service, and the amount paid. If you paid an individual like a babysitter, you need their SIN. The CRA requires this so they can verify the income was reported by the provider.

Part D: Calculating Your Deduction

This section calculates your allowable deduction as the lesser of: the total expenses paid, the annual limits based on each child's age, and two-thirds of the claiming person's earned income. The resulting amount goes on line 21400 of your T1 return.

Part E: Higher-Income Spouse Claiming

If the higher-income spouse is claiming under one of the exceptions, complete this section. You calculate a weekly limit based on the number of weeks the lower-income spouse was in school, incapacitated, incarcerated, or living separately.

Record-Keeping

You do not submit receipts with your tax return, but you must keep them for at least six years in case the CRA reviews your claim. Receipts should include the provider's name, address, SIN or business number, service dates, and amounts. For daycare centres, a year-end statement is typically sufficient. For individual caregivers, both parties should sign a receipt. For more guidance, see our guide to filing your first tax return.

Special Situations

Newcomers

If you arrived in Canada during the tax year, you can claim child care expenses for the period you were a Canadian resident. Your earned income for the two-thirds calculation is based only on income earned while resident. Visit our guide to the Canadian tax system for newcomers for broader context.

Shared Custody

If you share custody, each parent claims the child care expenses they personally paid. Both parents cannot claim the same expense. Coordinate to avoid double-claiming, which will trigger a CRA review.

Employer-Provided Benefits

If your employer provides child care benefits, these are usually included in your income. However, you may be able to deduct them as child care expenses on T778. Details are on the CRA child care expenses page.

Common Mistakes to Avoid

• The higher-income spouse claiming when the lower-income spouse should be claiming
• Claiming for children over 16 who are not eligible for the disability tax credit
• Not obtaining the care provider's SIN or business number
• Including non-eligible expenses like clothing, food, or pure education fees
• Exceeding the per-child annual limit or the two-thirds of earned income limit
• Not keeping receipts for at least six years

Provincial and Territorial Credits

Some provinces offer additional child care credits or deductions beyond the federal T778 deduction. For example, Manitoba offers a child care expense tax credit, and Quebec has its own refundable tax credit system. Check with your provincial or territorial tax authority for additional benefits you may be eligible for. You can also explore benefits like the Canada Child Benefit.

Related Guides

• How to File Schedule 7 for RRSP Contributions
• How to Fill Out T776 for Rental Income
• How to Apply for the Canada Child Benefit
• How to File Your First Tax Return in Canada
• Applying for the GST/HST Credit

Claiming child care expenses on Form T778 can provide meaningful tax relief for families. By understanding the eligibility rules, keeping proper receipts, and completing the form carefully, you can maximize your deduction and reduce your overall tax burden.