In Canada, there are various forms the CRA requires taxpayers to file. Canadians can use these forms to claim deductions to reduce their taxable income while saving more on taxes. These forms serve various purposes, and the T778 is one of them.
Also known as Child Care Expenses Deductions, the T778 form is aimed at people who need to claim child care expense deduction. It lessens your incomes and saves you tax at your marginal tax rate.
What is Form T778?
T778 is one of the many tax forms taxpayers in Canada can use to claim deductions to save on their taxes. Taxpayers use it to claim deductions on eligible children.
You can use the form to calculate and claim child care expenses. The CRA will deduct those expenses from your income tax, which can reduce the amount you have to pay for it. T778 is a tax deduction that is different from a tax credit and should not be confused for one.
For Residents of Quebec who are receiving an RL-24 slip, they’ll need to input the amount from the slip mentioned above into the T778 form to claim their federal deduction for childcare expenses.
Your RL-24 slip might include a note detailing the amount that can be used to claim the federal deduction for certain childcare expenses. If you fit this scenario, enter this amount on your T778 form. Alternatively, you can input the amount shown in box C of your T778 slip.
Newfoundland and Labrador residents who are eligible to claim the federal child care expenses amount can also claim the Newfoundland and Labrador child care amount.
The T778 can only be used by taxpayers who support children below the age of 16. Child care expenses are usually incurred when either you, your spouse, or common-law partner pays someone to look after your child or children due to work-related or school-related reasons while the child lives with you.
This is to say that if your child lives outside of Canada, you cannot claim expenses for payments made for child care services provided outside Canada.
The T778 is usually filled out by a person (in a marriage or common-law relationship) with a lower net income. However, some situations allow the person with the higher net income to fill the form and claim the expenses. Such situations include:
- If the person with a lower net income was attending school either a part-time or a full-time student
- If the person with the lower net income was sick or had an impairment and was in the hospital for two weeks or more
- If the person with the lower net income was in prison for two weeks or more
- If both supporting parents (lower-income person and higher-income person) lived separately at the end of the tax year due to a relationship breakdown.
- If the parents are separated but share custody of the child, they will claim parts of their responsible costs.
Eligible and Non-Eligible Expenses Under T778
Before we delve into the eligible and non-eligible expenses under T778, note that if an individual provides the child care services, he or she must not be:
- You or your spouse
- The child’s parent ( if the child is only living with you)
- Any relative of yours (by blood, adoption, marriage, and common-law partnership) that is under the age of 18
- A person for whom you or someone else have claimed some amounts for ( amount for an eligible dependant, amounts for infirm dependants age 18 and above, caregiver amount or/and family caregiver amount for under-18 children)
If any of the persons mentioned above provides child care, you cannot claim child care expenses.
Eligible Expenses Under T778
Below are some of the eligible expenses you can claim on the T778 if you are a taxpayer supporting an eligible child:
- Payments for caregivers providing child care services
- Payments made to daycare centers and day nursery schools
- Costs for day camps and day sports school (with the primary aim of caring for children, schools with sports study programs are exempted)
- Expenses for overnight sports schools and camps that provide lodging
- Payments for boarding schools
- Payments for educational institutions like private schools (only the fees related to child care should be reported)
- Advertisement fees for hiring a nanny
Non-Eligible Expenses Under T778
The non-eligible expenses under T778 include;
- Clothing, transportation, and medical care
- Regular tuition and sports study program fees (standard educational costs)
- Leisure or recreational activities
- Reimbursement expenses for child care expenses or other benefits
How to Obtain the Form T778
You can obtain the form from the CRA website, print it, or download it. Alternatively, you can also use the PDF fillable format. You can even fill it electronically.
Who can claim childcare expenses using T778?
Generally, if you support an eligible child beneath the age of 16, you qualify to fill out the form T778 to report the whole expenses spent. Typically, the form is filled out by the person with a lower annual income.
Nonetheless, the CRA acknowledges situations where a person with a higher annual income can claim expense deductions. To distinguish this, higher yearly income spouses can complete Parts C and D of the T778 in the case of separation that has exceeded 90 days before reconciling.
Only qualified persons can claim T778 child care expenses deductions. If only one partner is making payments for the child(s), the CRA requires you to fill out Parts A and B. If applicable, you can fill out Part D.
Contrarily, if you’re living with another person, they can claim the deduction if they qualify as the child’s parent. They can also claim deductions if they are your spouse or common-law partner, though you must be the child’s father or mother.
To crown it, they must be low annual income earners. An individual can claim deductions for an eligible child on lines 30400, 30425, 30450, or 30500 of their return using T778.
How to Fill the Form T778
The T778 form has four parts, they include;
- Part A
In this part, you will enter the child care expenses you incurred in the tax year you are claiming deductions for. You will provide the names (first and last) and the dates of birth of the child/children you claim expenses.
You will also need to give the child care organization the name you made payments to or, instead, the child’s name and Social Insurance Number (SIN). In this part, there is a separate entry for expenses paid on children who are six years old or younger at the end of the tax year.
You will also provide the number of weeks the child/children spent in boarding schools or overnight camps. If you have more than one eligible child, you must list out the expenses for each child.
- Part B
This is the part where calculations are made. It contains nine lines, and you will need to enter the number of eligible children you are claiming child care expenses on, your earned income, and the allowable deductions.
Here, you will calculate the fundamental limit of qualified expenses you are entitled to for each child, depending on age and health. These limits are CA$8000 for children who are six years old or younger, CA$5000 for children between the ages of 6 and 7, or an infirmed child above 16 but cannot claim the disability amount. And CA$11000 for a child of any age with a mental or physical disability can claim the disability amount.
You will then calculate two-third of your earned income. The lesser of the actual expenses, two-third of your earned income, and the primary amount (limit) will be the allowable expenses you can claim. You will claim these expenses on line 21400 of your income tax return.
The calculations can be complicated, so employing the use of tax software is recommended. Check out some of the best tax software in Canada.
- Part C
This part is for the higher-income person. As described above, if you are eligible to fill the T778 as a person with a higher net income, this is the part you are required to fill. Your basic limit here will be the amount calculated in part B multiplied by 2.5%.
- Part D
This part can be filled by either the lower-income person or the higher-income person. As a lower-income person, you will fill this part if you are the only one paying for child care, but you are enrolled in an educational program in the same period. The CRA requires you to fill this part for the higher-income person if you and your partner are enrolled in educational programs.
You must keep receipts of payments for the child care services and submit them if you are filing your return on paper. If you file it electronically, you are only required to keep them if the CRA requests them. The receipts should show the caregiver’s SIN if the services were provided by an individual and not an organization or agency.
The T778 form is used to claim child care expenses on eligible children by taxpayers in Canada. It is a deduction form and not a tax credit, which means that it can reduce the amount of tax one must pay.