Francesca Giroux, CPA
For the Lakeside Leader
If you run a daycare out of your home there are few things that you should be aware of to make your personal tax return filing and issuance of receipts to clients easier. Form T2125 Statement of Business or Professional Activities should be used to report the income and expenses of your daycare business. The gross income for the daycare should include all the payments received from your clients during the year as well as any subsidies received (i.e. provincial grants to care for children). Expenses that can be deducted on your income tax return are any reasonable expenses that you incur to earn your daycare income (this does not include personal expenses). Examples of reasonable expenses, include but are not limited to advertising, business-use-of-home-expenses, field trips, professional fees, office expenses, and supplies. Your net income reported on your tax return is determined by deducting your total expenses from your gross income earned from daycare services.
You can deduct from your net income business-use-of-home expenses; however, the amount deducted cannot create or increase a business loss. If there are undeducted business-use-of-home expenses as a result of this, the excess expenses can be deducted from daycare income in a future year as long as your home is still being used as a daycare and the expenses would not create or increase a business loss in that year. Next week we will review how to calculate business-use-of-home expenses.
As an individual running a daycare out of your home, you will be required to issue receipts to the parents of the children in your care for tax purposes. This should be done shortly after December 31 to give your clients enough time to file their income tax returns. The information included on the receipt should indicate who the payments were received from, the name of the child who was in your care, the sum of the payments received for the given period, your name, address, social insurance number, signature and date the receipt was issued. You can issue receipts for any time period that is suitable for you and your clients; therefore one receipt for the entire year is acceptable.
Regarding record retention you must keep the supporting documents for your income and expenses (i.e. receipts, bank statements, cancelled cheques, bills, etc.) for a minimum of six years. The records do not need to be sent in with your personal income tax return, but should be kept in case the Canada Revenue Agency requests them.
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Information provided is of a general nature. As each individual or company’s situation is different you may wish to consult a CPA for information for your specific needs.