Do your children go to a daycare center? Did you know it may cost less to hire a nanny than what you’re currently paying? In this post we’ll cover both the out of pocket side and tax benefits of choosing a nanny over a childcare center.
How much are you currently paying for childcare?
If you have more than 1 child, chances are you are paying an arm and a leg for care. Depending on your location, infant care can cost upwards of $1,000 per child a month. If you are paying a daycare to keep multiple children, you are likely paying out a huge percentage of your income in child care costs.
On top of that fee is fuel costs. Driving the kids to and from their daycare center and driving to pick them up at the end of the day isn’t free. Add in your time, and you could be looking at even bigger savings by skipping the daycare and hiring a nanny.
How much would a nanny cost?
Minimum wage and salary for household employees varies by province, and also on if your caregiver will be live-in or live-out. The Retail Council of Canada website has a great illustration of the minimum wages as of May 1, 2016, along with a chart of when the next increase is scheduled for each province. Your province likely has other costs and rules that must be included and followed, such as paid vacation time, time off amounts, minimum hours, and so forth. It’s important that you look up the regulations set for your location, so you know exactly what you’ll be paying out of pocket.
The Room & Board Deduction
As of November 2014, the room & board deduction is no longer allowed if hiring through the Foreign Worker Program, however it may be allowed if you are hiring a Canadian citizen.
According to the Government of Canada website, “Room charges are calculated on a weekly or monthly basis, depending on the conditions of the employment contract. Whether you may deduct room and board directly from your employee’s pay cheque may be governed by provincial or territorial employment standards laws.”
What does this mean? In some provinces you may be able to deduct room and board from your caregiver’s cheque, meaning you end up paying them less. Make sure you abide by your provincial employment standards regarding maximum charges for room and board (and remember that you can’t charge a Foreign Worker). The amount needs to be agreed upon by both parties, and included in your nanny contract. If you do not deduct room and board and your nanny lives in your home, this is considered a taxable benefit, and the fair market value of their free room will need to be added into each pay period’s tax calculation.
You may be thinking that once your new nanny becomes a part of the family, it may cost you more around the holidays and their birthday as you’ll want to give them a gift too. Thankfully, you can give gifts (up to a maximum value) for those occasions without needing to include as part of your employee’s taxable income. To keep the gift value from being added to their salary as a taxable benefit, meaning they have to cover taxes on it, avoid cash, near cash gifts, cheques, and gift cards. Need a gift idea that won’t add to the tax burden? Check out our post: 30 Fabulous Tax-Free Gift Ideas for Nannies and Caregivers.
Public Transit Tax Credit
If your nanny lives out of your home and must travel to you, a bus pass that you provide to them can be used as a tax credit on your personal income taxes. There may be many more deductions available to you, depending on your specific situation, which is why it’s important to speak with a tax professional and make sure you aren’t missing out on savings.
A Free Month on Us
Ready to take the plunge and hire a nanny? Be sure to check out our post How to Start On Nanny Payroll. If you’re worried about math calculations, the CRA, maximizing deductions, and staying compliant with your provincial Employment Standards, fear not! NannyTax has ZERO set up fees, NO contracts, No long term commitments, and NO hassle! Best of all, your first month of our service is on the house.