Ontario CGA
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The payments that the daughter is making are eligible for the childcare expense deduction. Review the below link for details. The mother would have to issue the daughter a receipt for the amount paid.
If the daughter is going to claim the payments as a deduction then yes, the mother should claim the payments as income. However, the mother would be able to deduct associated costs from the income, such as cost of food provided, reasonable portion of house costs, etc. The second link looks at the allowed expenses.
Given the rate of $20 per day it would be very likely that after allowed expenses the mother would have reduced the income to $0.
Hope that helps. |
taxgal2007
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There are several issues here, firstly, the fact that the daughter is in schooI and may not have sufficient earned income to make a daycare claim on her tax return should be taken into careful consideration.
Secondly, and more importantly, is the issue as to whether the daughter and mother are dealing with each other at "arm's length". Consider this scenario, if the daughter hired a non-relative to look after her children, would she be paying $20.00 per day to perform the same duties that her mother is currently doing?
If the daughter hired an non-relative and was dealing with that person at arm's length, chances are that the daughter would have some written agreement with the daycare provider, and she would be paying by cash or cheque, and the day care provider would be obligated to provide a receipt to the payor complete with name, SIN (or business number), address, telephone number, and the fees charged for that particular taxation year ending December 31. Furthermore, most licensed daycare providers have liability insurance when dealing with other children in their care.
If the mother is babysitting as a personal favour and charging less than fair market value for the services, the mother is probably doing so just to recover the cost of having the 2 children in her home, eg., food costs, possible transportation, diapers, etc.
In the absence of a written agreement, cancelled cheques, and receipts between the parties, namely the mother and the daughter, chances are 100% guaranteed that any claim made by the daughter on her T1 general income tax return would be eventually disallowed in the long run.
If the daughter telefiles/netfiles her tax return and makes a claim for daycare on line 214 based on the maximum claim available calculated on the T778 form, CRA will initially process the tax return as reported by the taxpayer, but be aware that she will be asked to produce original receipts at a later time. Failing to provide the proof will ultimately lead to a disallowance of the claim and a reassessment, and the owing of taxes with arrears interest, if applicable.
For further clarification on this matter, I strongly recommend that the daughter contact CRA (Canada Revenue Agency) general inquiries at 1-800-959-8281.
As a former employee of the customs and excise dept (GST collections) and a tax consultant for the past 27 years, I would advise the daughter NOT to make any claims unless she has the documents to support such claims. |
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