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Childcare expenses: How they affect your finances

Choosing the most suitable childcare for your family’s needs just got complicated. You’ve probably heard of the recent changes and increases to the subsidized childcare rates. If you have young children or plan to become a parent in the near future, before you start looking for daycare spaces first consider that the basic and additional contributions for subsidized childcare (childcare and daycare centres) do not qualify for the tax credit for childcare expenses in Québec.

Many parents affected by these new measures would be wise to look at the net, after-tax cost of childcare expenses based on their situation. Let’s take a closer look at how this affects your personal finances.

The Québec government put an end to universally subsidized educational childcare on April 22, 2015. Since then, an additional contribution for children receiving subsidized childcare has been applicable based on net family income for the previous year 1,2. This additional contribution does not apply to a third child and subsequent children receiving subsidized childcare.

When unveiling its most recent budget, the provincial government announced a 50% reduction in the additional contribution for the second child receiving subsidized childcare. As an example, the maximum additional contribution for your second child would thus drop from $12.70 to $6.35. This reduction is retroactive and therefore applicable to 2015. However, when you prepare your 2015 income tax return, you must not account for this reduction in your calculation of the additional contribution.

If this change affects you, Revenu Québec will take the necessary steps to ensure you can benefit from the reduction in the additional contribution for 2015 in a timely manner. For parents who filed their 2015 tax returns early, meaning before March 17, 2016, Revenu Québec will provide a refund. For other parents, Revenu Québec will reduce the additional contribution when processing their tax return and will inform them in the notice of assessment.

The refund from Revenu Québec, for a portion of childcare costs after filing the federal income tax return, will affect parents who benefit from the federal deduction for childcare expenses with regard to the additional contribution. If that is the case for you, the Canada Revenue Agency may have you contribute again for the 2015 taxation year.

In addition to the facilities, activities and food offered to your little one, there are also several financial factors you have to consider.

If you are concerned about all of these changes or would like advice from a financial planner, let us know. We would be more than happy to help.

1 Net family income for the previous year refers to the individual’s net income for the previous year plus, if applicable, the net income for the previous year of the individual’s spouse on December 31 of the year in question. Therefore, to calculate net family income, the individual must first determine whether he or she had a spouse on December 31 of the year in question before adding the spouse’s net income for the previous year.

2 Net family income for the previous year except if net family income for the current year is $50,000 or less.

April 29, 2016

This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.