The Canada Revenue Agency has eliminated the Investment Tax Credit for companies that set up child care facilities for employees. This policy took effect in March 2017. Your clients can still claim the credit until 2020, but only for costs contracted before the policy date. Claiming the credit requires submitting a specific form with their business tax return.
Why Is the Government Eliminating the Investment Tax Credit for Child Care Spaces?
The child care tax credit offered up to $10,000 or 25% of eligible expenditures. The CRA hoped this would spur companies to become more accommodating to working parents. But according to the government, the credit has had low use. Few businesses are even claiming it. And the data indicates the credit has not led to an increase in child care spaces at workplaces.
The government constantly reviews tax credits to measure whether they’re achieving intended results. Unfortunately for your clients that did invest in child care, this one didn’t pass the test.
Can My Clients Still Claim Expenses for Their Companies’ Child Care Spaces for 2017 or 2018?
The elimination of the tax credit became effective March 21, 2017. Businesses can claim the credit for any expenses for child care space incurred before that date. For costs incurred after that date, companies don’t get to claim the credit, with one exception.
If a business entered into a contract for child care-related services, and the contract was established before March 22, 2017, the business can claim the credit until 2020 for expenses specified in that agreement.
Which Child Care Space Expenses Can My Clients Claim?
For child care contracts entered into before March 2017, your clients can claim the credit for some costs, but not all. Eligible costs include depreciable property to house the child care space, such as:
- The building housing the child care space;
- Furniture and appliances;
- Computers and other technology;
- Playground equipment.
They may also claim startup costs for launching the child care space, including:
- Building permits and fees paid to architects and engineers;
- Landscaping to create a playground;
- Regulatory costs;
- Educational material for the children.
They may not claim the credit for the following expenses:
- Any property, including buildings or motor vehicles, attached to the taxpayer’s own residence;
- Their child care employees’ salary or wages;
- Ongoing costs of supplies and utilities.
How Do My Clients Claim the Investment Tax Credit for Child Care Spaces?
When preparing a business tax return for a client eligible for this tax credit, fill out and submit form T2038(IND). You can download the form from the Government of Canada website. After using the form to calculate the appropriate credit, enter it on line 412 on Schedule 1 of the return.
Your client is able to carry back the credit three years or carry it forward 20 years. Form T2038(IND) has sections corresponding to each of these actions.
The Investment Tax Credit for child care spaces has come to an end. But for certain costs, your clients might be able to take advantage of it a little while longer.