Saturday, October 11, 2014

How to Fund Childcare in Canada

My idea is this: don't limit the childcare deduction to just people's own kids

In Canada, childcare expenses are tax deductible in the same way that retirement fund (RRSP) contributions are. They come off the total of your income, so you get back whatever percentage your highest tax rate is. The more you make the more the deduction is worth. (Whoever has the lower income in a couple has to claim it.)

I understand the reason an RRSP contribution comes off the top of your income. You're loosing access to money now in hopes that you will be in a lower tax bracket later in life. But I don't quite understand why childcare is treated the same way. Tax law history is not easy to find online. It's probably something to do with the idea that you spend $50 a day to go to work and make $150. You don't get to spend the $50 on yourself or on goods or experiences for your kids. (A good daycare can be a good developmental experience, so this reason doesn't make complete sense.)

Whatever the reason I suggest we let people pay to send other people's kids to day care and let them deduct the cost in the same way. It would be a like a charitable contribution, but worth more than 15% to those in higher tax brackets.

There are a couple of different ways you could run this. One would be to have to pay for a particular child. A group of family and friends would all pay a child's parent(s) some amount towards day care. There would have to be receipts from the child's parent.

Another way would be to have non-profit companies to which anyone could contribute and parents would apply for help. You'd loose some of the contributions to the overhead of running the company, but the benefits would be more widespread.

My next step is to write to all of the federal leaders and maybe even the provincial ones. I'm not a fan of the federal Conservatives, but it wouldn't be the first time that they extend a tax deduction. This might be right up their alley.

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