From milestone to milestone, perhaps one of the most difficult challenges in raising children is time management. At least that was true for us. . .and we found that to squeeze in all the advantages and potential for a fulfilling life for all of us, help was needed along the way, especially from the many caring child care workers we employed along the way.

The taxman helped too, as the cost of paying a babysitter or nanny for the care of the children while the parent(s) work is deductible. If you are looking for the form to do so in your tax software package, this claim is calculated on Form T778 and deducted on Line 214. Here are some essential tax facts about making the claim:

• Eligible taxpayers: Parent(s) who pay another individual to care for their children so that they may earn income from employment or self-employment or so that they may attend carry on research, or attend school either full- or part-time are eligible. It is usually the lowest income earner who must claim the child care expenses, although in Part 2 of this series we will discuss some exceptions to this rule. Those who start to live in a conjugal relationship during the year (married or common-law) must take income for the whole year into account in deciding who qualifies.
• Eligible dependants: Expenses are deductible for the care of dependent children who live with you and were under the age of 16 (at any time during the year) or who are physically or mentally infirm (no age limit). An eligible child must be your child, your spouse or common-law partner’s child or a child who was dependent on you or your spouse (or partner). If the child is not your child or your spouse’s or partner’s child, the child’s net income must be less than the Basic Personal Amount ($8012 in 2004; $8148 in 2005).
• Eligible babysitters: Expenses actually paid to a Canadian resident or to a non-resident for services outside Canada or to a deemed resident of Canada. Babysitters may be related to you, but must be over age 17. Payments made to a parent of the child or to a supporting person are not deductible.
• Earned Income Definition: The child care deduction is limited to two-thirds of Earned Income.
    $4,000 for each child aged seven to 16 or those infirm dependants for which the Disability Amount cannot be claimed plus
    $7,000 for each child under seven or those infirm dependants for which the Disability Amount cannot be claimed plus
    $10,000 for each disabled dependant for whom the Disability Amount can be claimed

Stayed tuned for Part 2 next time and learn about special rules for students and high income earning spouses.

For more information and to obtain a copy of Essential Tax Facts by Evelyn Jacks, call toll free 1-866-953-4769 or visit Evelyn’s website: www.knowledgebureau.com.