Child Care Deductions for Incorporated Physicians: Getting the Rules Right

In short: Child care expenses cannot be deducted by a Medical Professional Corporation; the lower-income spouse claims them personally, up to $8,000 per child under 7, $5,000 per child aged 7 to 16 and $11,000 per child eligible for the disability tax credit, capped at two-thirds of that spouse's earned income. Dividends are not earned income, so a physician paid only in dividends may be able to deduct nothing. ZAI Wealth Management's fix is enough T4 salary to create earned income, topped up with dividends, with receipts and caregiver details kept for CRA review.

The basic rules

• Personal, not corporate: child care is a personal deduction. Your MPC can't deduct it as a business expense.
• Lower-income spouse claims: in most cases the spouse with the lower net income must claim it.
• Limits: up to $8,000 per child under 7, $5,000 per child aged 7 to 16, and $11,000 for a child eligible for the disability tax credit, and no more than two-thirds of the claimant's earned income.

The dividends-only problem

Earned income includes salary but not dividends. If you're paid only in dividends and you're the spouse who has to claim, two-thirds of zero earned income means no deduction at all.

The fix

Pay yourself enough T4 salary to cover the deduction you expect, then top up with dividends. Keep receipts and caregivers' details: this deduction is commonly reviewed.

See also the hidden cost of a dividends-only plan.

Run your own numbers with our Physician Tax Savings Calculator.

For illustration and general information only. Tax rules change and every situation is different, so speak with your advisor and accountant before acting on anything here.

Common questions

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