In-Home Daycare Centres and Taxes
Running a home daycare is a common business. When it comes time to complete your taxes, there are certain guidelines and rules that should be followed in terms of reporting the income from your daycare.
Home Daycare Guidelines
- The first distinction you must make is if you are considered self-employed, or if you are a contract employee, where the parents of the child or children you watch are technically your employer.
- If you are self-employed, you are allowed to deduct certain expenses related to your daycare from your income.
- If you are classified as an employee to the parents of the child or children, then you are not allowed to deducted the expenses of your daycare.
- Generally, if you care for children on a part-time or casual basis then you are considered an employee. If you care for children on a full-time basis then you are likely considered self-employed.
- If you are considered a self-employed person then you are entitled to deduct expenses related to running your daycare. The general rule of deducting expenses is that you can deduct any expense incurred in the goal of earning income. Some common examples of expenses to deduct are:
- Advertising Costs
- Business taxes, licences and memberships
- Maintenance and repair costs to the daycare or your home if the damage or repair was a result of the daycare or wasn’t reimbursed by your home insurance.
- Management and administration fees, including administration costs such as bank charges or payment processing fees.
- Motor vehicle expenses related to the costs of operating a vehicle for your daycare.
- Supplies such as toys, books, cleaners, towels, diapers, soap and also food that is provided in your daycare.
- Legal and accounting fees.
- Salaries or wages paid to any employees or contractors. This would also include any employer portion of CPP and EI paid on behalf of employees.
- Travel or field trip costs.
- Capital Cost Allowance for any capital assets you may have in your daycare such as furniture, daycare equipment or office equipment.
- Business use of home expenses or office in-home expenses that relate to deducting a portion of your utilities, home insurance, home maintenance costs, rent, property taxes, and mortgage interest for the proportionate use of your home that the daycare uses.
- Telephone costs
- Record keeping is an important aspect of your business as you will want to retain all receipts for expenses and invoices for amounts charged to parents/customers. You should also keep a record of kilometres travelled in your vehicle for daycare purposes.
- Sales invoices/receipts issued to parents should include the total amount of money received/charged to the parent/customer during the calendar year and will need to be issued shortly after December 31 in order to allow parents/customers to deduct the amounts they paid to your daycare off their taxes. Receipts issued to parents/customers should include:
- Name of parent/customer
- Name of child
- Amount of money you received from the parent/customer for the year
- The date period covered by the daycare services
- Your name
- Your address
- Your signature
- The date the receipt was signed by you
Filing your taxes to include the operation of a daycare in your own home is not difficult, but it does require the retention of documents and that certain rules or guidelines be followed.