Everything you need to know about T778

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There are various CRA tax forms you can use to claim deductions to reduce your taxable income while saving more on taxes: The T778 is one such form. Here's what you need to know.

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What is Form T778?

Also known as the Child Care Expense Deductions, the T778 is only available to taxpayers with an eligible child. It features various parts that allow you to claim child care expenses. However, the T778 shouldn't be mistaken for a tax credit. It is a deduction that can significantly reduce your total tax owed. Below is a quick overview of the T778 form, including who should fill it and the expenses you can claim. The form features four main parts, as follows:

Part A – Total Child Care Expenses

This is where you enter the total child care expenses you have incurred during the tax year for which you're claiming deductions. In this section, you can enter the first name, last name, and birth date of all eligible children. You will also enter the expenses paid and the child care organization (or name and SIN of the child) who received the payments. Other entries include the number of weeks spent in boarding schools and overnight camps, and a separate entry for total expenses paid on eligible children six years or younger at the end of the tax year.

Part B – Basic Limit for Child Care Expenses

This section has nine distinct lines where you will enter the number of eligible children, earned income and allowable deductions. This is the complicated part of the form and involves calculating the total allowable deductions you can claim, described in the sections below.

Part C – Person with the Higher Net Income

As the title reads, this section is left to the spouse or partner with a higher net income. Form T778 is often filled by the person with the lower net income. However, some cases allow those with higher income to claim expense deductions. These include situations where the low net-income partner was enrolled in school, physically or mentally impaired, imprisoned, or if you were apart. Essentially, these are the scenarios the CRA considers eligible for higher net income partners claiming T778 deductions.

Part D – For Those Enrolled in an Educational Program

This section is reserved for two unique situations. The first is if you are the only person paying for the eligible child and enrolled in an educational program in the same year. The second is if you are a partner with a higher net income and enrolled in an educational program. Part D doesn't apply to partners with low net income. Higher net income partners must also fill Part C before completing Part D.

Who can claim childcare expenses?

Essentially, if you support an eligible child below 16 years of age, you can fill out form T778 to report the total expenses spent. Form T778 is filled out by the person with the lower net income. However, the CRA recognizes circumstances where the person with the higher net income can claim expense deductions. Higher net income partners can also complete Parts C and D of the T778 if they were separated for more than 90 days before reconciling.

Only eligible persons can claim T778 deductions. If you are the only one making payments for the child, you will fill out Parts A, B and, if applicable, D. On the other hand, if you live with another person, they can claim the deductions if they are the eligible child's parent. They can also claim deductions if they are your spouse or common-law partner, but only if you are the child's father or mother. They also have to be low net income earners. An individual claiming deductions for the eligible child on lines 30400, 30425, 30450, or30500 of their return can also fill out T778.

What payments can you claim?

Taxpayers supporting eligible children can claim the following payments:

  • Caregivers providing child care services

  • Daycare centers and day nursery schools

  • Day camps and day sports schools with a primary goal of caring for the children. This doesn't apply to institutions with sports study programs.

  • Overnight sports schools and camps that including lodging

  • Boarding schools

  • Educational institutions like private schools. Only the tuition portion related to child care services is reported

What payments can't you claim?

Form T778 isn't designed for some expenses, which may be covered in other tax deduction slips. You cannot claim payments made towards the following:

  • Clothing, transportation and medical/hospital care

  • Regular program tuition, sports study program and fees related to standard educational costs at an educational institution

  • Fees for leisure and recreational activities, such as annual scout registration and tennis lessons

Form T778 also doesn't allow taxpayers to claim expenses for reimbursement of child care expenses or other benefits excluded from the income. However, you can claim expenses when filing for a person who died during the tax year if you lived together and still living with the child. The T778 might be a tad complicated, so it is always recommended to hire experienced tax specialists to help you claim maximum deductions.

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Last Updated January 11, 2021

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