Question from a new mom heading back to work. To get daycare receipts or not.
Yesterday we had an interview with a daycare provider and she had a price with receipts $55 or $47 with no receipts. She said that most prefer no receipts as it works to their advantage.
This is an excellent and very important question, that many people grapple with when they are looking into daycare. Unfortunately the answer is not simple.
Let's look at it from a selfish version of "what's best for me", and not include the "but the provider isn't claiming her income if they aren't providing receipts" factor. (I'll talk about that a bit at the end.)
There are people who fall in both categories of whether receipts or no receipts is better for them.
I live in Ontario, so I am going to be using Ontario numbers for the 2010 tax year.
Since child care costs can typically only be claimed by the lower income earner (there are exceptions where the higher income earner can claim it, eg: if the lower income earner is in school, but we'll use the "norm" where both are working here), then:
a) If the lower income person of a couple (or single parent) paying child care made less than $11433 ($10382 Basic Personal Amount +$1051 Canada Employment Amount) then the Child Care Deduction does nothing for them, and the "without receipts" option of $47 is financially better for them.
b) If the lower earning person of a couple (or single parent) is earning between $11433 and $37106 we need to calculate the difference tax deduction will make. In Ontario, you are taxed 20.05% on your first $37106 earned.
So, in this example, paying $55 with receipts or $47 without, $55 multiplied by 20.05% = $11.03, which in comparison to without receipts would be $55.00 - $11.03 =$43.97 cash paid, no receipts rate.
Obviously, $43.97 is less than $47.00, so getting receipts is the better option in this case.
If the lower income person earns more than $37106, the savings for having receipts are even greater, because their tax rate on the portion of their income above that amount would be higher.
Please recalculate based on the rates you are deciding upon. These rates were used as an example only. Also, child care/daycare rates vary based on where you live. These rates would be high, even for an infant rate, for where I am, but more common in urban areas.
If you want to use different tax rates for other provinces or for higher income brackets, but don't know where to find them, here is a link to TaxTips.ca
Of course, these calculations are not including any of the human factors of "But the child care provider obviously isn't reporting their income." There is a large "black market" of under the table work in Canada in all types of jobs. If you have a child care provider who does not provide receipts, there IS a way you can still claim it.
Make sure to always pay with a cheque, and in the description line at the bottom left hand side of the cheque, write what it is for, the date, and the children who are in care. For example "child care - Oct 3-10 - Amelia". Either scan the cheque before giving it, or many banks have scanned copies of the cheques that have been processed on file. Use these as your receipts.
Of course, if the child care provider gets audited regarding their income, you might need to find a new provider in the future, which is a whole other task in and of itself!