Taxes and childcare expenses deduction for a dual-income couple in Alberta?

Question

We live in Alberta and need to know if we should obtain a receipt for childcare. We paid $2400 last year. My common law husband made $49000 last year and I made $28500. Is this worth it? Will our childcare provider be taxed as well?

Answer 1

Generally speaking, child care expenses are deductible on the tax return of the spouse with the lower net income, and at your income level, a $2400 deduction would be worth a reduction in taxes of $600, on your 2011 tax return.

So if you'd like to reduce your taxes by $600, do ask for that receipt – and yes, a receipt is required. Refer to Canada Revenue Agency's Form T778 - Child Care Expenses Deduction for 2011. Quote:

Supporting documents – The individual or organization who received the payments must give you a receipt showing information about the services provided. When the child care services are provided by an individual, you will need the social insurance number of the individual. Do not send receipts with your return, but keep them in case we ask to see them. If you file your return electronically using EFILE, show your receipts to your EFILE service provider.

Whether or not you get a receipt (and if you don't, you forgo the $600), your childcare provider is still required to declare their self-employment income, and their net income (i.e. after any costs incurred doing the business) would be subject to income tax.

If you think you'd be doing somebody a favor by not asking for a receipt, you'd potentially be helping somebody commit a tax fraud.