Child care expenses

Generally, child care services you provide or child care expenses that you reimburse or pay on behalf of your employee are a taxable benefit. This includes situations where you provide child care services at a cost that is less than the fair market value (FMV).

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• Steps
• References

Steps

1. Determine if an exception applies to the benefit

   The benefit may not be taxable if you pay or reimburse for child care expenses which were required while your employee is away on house hunting trips to the location where you are transferring your employee.

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   • If the above exception applies, do not continue to next step.

     Learn more: Moving and relocation expenses

   • If the above exception does not apply, the benefit your employee receives may be taxable.

     Continue to: Step 2 - Determine if the benefit is taxable.

2. Determine if the benefit is taxable

   Depending on your situation, the benefit may not be taxable under the CRA's administrative policy.

   Non-taxable situation

   Under the CRA's administrative policy, if you provide in-house child care services to your employee the benefit is not taxable if all of the following apply:

   • The services are provided at your place of business.
   • You directly manage the services.
   • The services are provided to all of your employees for free or for a minimal cost.
   • The services are only available to your employees (not the public).

   Taxable situation

   If the benefit for child care services you provide to your employee does not meet all of the conditions above, the benefit is taxable.

   For example, if you provide child care services to a select group or category of employees for free or for a minimal cost, while other employees have to pay the full cost, the benefit is taxable to your employees who do not have to pay the full cost.

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   • If the benefit is not taxable, you do not need to do any calculations.

     Do not continue to next step.

   • If the benefit is taxable, continue to: Step 3 - Calculate the value of the benefit.

3. Calculate the value of the benefit

   If the benefit is taxable, the value of the benefit is equal to:

   • FMV of the benefit
   • minus Any amounts your employee reimbursed you
      
   • equals Value of the benefit to be included on the T4 slip in code 40 and in box 14

   The amounts must be included in the pay period they were received or enjoyed.

   Example 1 - Calculations

   The employer owns and operates an on-site child care facility that is available to all the employees and also to the public. The employer’s general business is not child care. The employer charges $800 per month to the public. The employee paid $600 per month to their employer for use of the service over the course of the full year.

   • $9,600 ($800 x 12 months) is the value of the service provided to the employee by the employer
   • minus $7,200 ($600 x 12 months) is the amount paid by the employee for the service
      
   • equals $2,400 is the value of the benefit to be included on employee's T4 slip in code 40 and in box 14

4. Withhold payroll deductions and remit GST/HST

   The withholding and remitting requirement depends on the type of remuneration: cash, non-cash, or near-cash.

   If the benefit is taxable, you must withhold the following deductions:

   • Non-cash and near-cash: Option 1

     Withhold:

     • Income tax
     • CPP
     • EI (do not withhold)

     Remit:

     • GST/HST in certain situations

   • Cash: Option 2

     Withhold:

     • Income tax
     • CPP
     • EI

     Do not remit:

     • GST/HST (do not remit)

   The amounts must be included in the pay period they were received or enjoyed.

   Learn how to calculate deductions and the GST/HST to remit: How to calculate - Calculate payroll deductions and contributions

    

5. Report the benefit on a slip

   If the benefit is taxable, you must report the following amounts on the T4 slip:

   • Non-cash and near-cash: Option 1

     Report on:

     • Box 14 - Employment income
     • Box 26 - CPP/QPP pensionable earnings
     • Code 40 - Other taxable allowances and benefits

   • Cash: Option 2

     Report on:

     • Box 14 - Employment income
     • Box 24 - EI insurable earnings
     • Box 26 - CPP/QPP pensionable earnings
     • Code 40 - Other taxable allowances and benefits

   Learn how to report on a slip: Fill out the slips and summaries - File information returns (slips and summaries).

References

Legislation