Tax savings for summer camps

With summer in high gear, families with young children know about the costs associated with summer camps—not to mention the logistics of getting kids to and from, making lunches and all the other juggling.

With the end of the federal Children’s Fitness and Arts credits effective the 2017 tax year, families lost access to one tax-saving tool. But if your clients still receive tax receipts from summer camp providers, they may be able to access another tool: the child care expense deduction (CCED).

Breaking down the CCED

To be eligible for the CCED, expenses must be incurred for providing childcare to an eligible child so that the taxpayer or a supporting person can undertake specific activities. Let’s define each key term:

• An eligible child is a child of the taxpayer or the taxpayer’s spouse or common-law partner. It can also be a child who is dependent on the taxpayer or the taxpayer’s spouse and whose income does not exceed the Basic Personal Amount ($11,809 in 2018). In all cases, the child must be under 16 or have a mental or physical infirmity.
• Specific activities may include employment, carrying on a business, research funded by a grant and attendance at a designated educational institution.
• A supporting person lives with the taxpayer and is either their parent, spouse or common-law partner, or another person who can claim a tax credit for the child under Section 118 of the Income Tax Act.

The maximum annual childcare expense amount for a child not eligible for the disability tax credit is:

• $8,000 for each child under age 7 at the end of the year;
• $5,000 for each child aged 7 or older at the end of the year and under 16 at any time during the year;
• $5,000 for each child aged 16 or older throughout the year with a physical or mental infirmity and dependent on the taxpayer and/or their spouse/common-law partner.

The maximum amount available for a child eligible for the disability tax credit is $11,000. Generally, the lower-income caregiver must claim the deduction and unused amounts cannot be carried forward.

* Weekly limits apply for children registered for overnight camps and boarding schools. Those limits are:

• $200 per week for each child under age 7 at the end of the year.
• $125.00 per week for each child aged 7 or older at the end of the year and under 16 at any time during the year. This amount also applies for children 16 and over with a physical or mental infirmity and dependent on the taxpayer and/or their spouse/common-law partner but who can’t claim the disability amount.
• $275.00 per week for each child for whom the disability amount can be claimed.

What’s a childcare provider?

Many parents may already be aware that payments to an eligible childcare provider, a day nursery school or daycare centre, as well as an educational institution, for providing childcare services (e.g., before and after-school care) can be eligible expenses. But what many don’t realize is that payments made to a day camp, sports school, boarding school or camp (including a sports school where lodging is involved) may also be eligible expenses.

In Income Tax Folio S1-F3-C1, CRA outlines some criteria that it considers when determining whether day camp (including day sports school) fees may qualify as childcare expenses. First, they must provide a sufficient childcare service. Normally this applies to day camps, as they are typically responsible for the children’s basic protection and safety (which qualifies as childcare service) while also providing activities and instruction that enrich the program. Other factors that are considered include:

• the age of the children;
• instructors’ qualifications;
• the extent that educational progress is measured;
• time devoted and program duration;
• the training and education facilities used.

Summer camps for children typically align well with CRA’s criteria, including camps that provide overnight lodging. However, the childcare expense deduction cannot be used for all expenses that may have been eligible under the fitness and arts credits. Fees related to the following activities are typically denied:

• after-school gymnastics,
• dance, tennis, riding and music lessons,
• sports (e.g., baseball and soccer leagues),
• annual registration for Scouts or Guides.

These activities (the list is not exhaustive) are recreational in nature and any childcare is considered incidental. Even though not all fitness and arts activities may qualify as childcare expenses, there are a couple of benefits this deduction has over those credits:

• Higher deduction limits. The fitness and arts credits were capped at $1,000 and $500, respectively, at their peaks. The annual limits for the childcare deduction range from $5,000 to $11,000, depending on the age of the child and if they are disabled.
• Greater tax savings. The credits provided a tax savings at the lowest federal tax rate (15%), whereas a tax deduction provides tax savings at the taxpayer’s marginal tax rate. If the taxpayer claiming the childcare expense deduction has a federal tax rate greater than 15%, they may experience more tax savings than they would have if they claimed the same expenses for either the fitness or arts tax credits.

Summer is the best time of year for many kids, with no school, great weather and two months to just be kids. For parents, summer can be expensive and a planning challenge. The child care expense deduction could be a saving grace, so keep those summer camp receipts for tax time.

*A previous version of this story didn’t include the weekly limits for overnight camps and boarding schools. This information has been added above.

Curtis Davis

Tax & Estate

Curtis Davis, FCSI, CFP, TEP, is director for tax, retirement and estate planning services, retail markets at Manulife Investment Management.