In some cities, finding a daycare spot is a competitive sport, and there are often waiting lists involved. So when a family becomes pregnant with another child, the parents may decide to keep their older child in daycare so they do not lose that spot.
In the past, the Canada Revenue Agency would usually reject the older child’s childcare expenses while the mother or father was on temporary leave. This was because they were not working.
There had been some cases in which the argument that a daycare spot would be lost has been successful in appeals, but these returns were reviewed under the Informal Procedure and the CRA did not recognize the decisions as precedent setting. So if you found yourself in this situation and made a claim, you needed to be prepared to make an appeal.
But this is no longer the case. The CRA has accepted the reasoning of a number of Tax Court of Canada decisions that such expenses are incurred to earn income from employment if the taxpayer remains employed during the temporary leave of absence, and the payments are made with the eventual aim of allowing the taxpayer to return to work.
Remember, childcare expenses are limited by two-thirds of your earned income, so you must still have had employment income at some time in the year. The expenses must also be claimed by the lower-income spouse. If your income for the year is only maternity benefits and you earned less than your spouse, you will not be able to claim the childcare expenses.
This change is a welcome one for parents with expanding families. It will make holding on to precious daycare spots a little more affordable.