Home Daycare Operators Tax Guide 2025: HST Exemption, Food, Home Office & CPP

Home daycare operators run one of Canada's most essential small businesses — providing childcare directly in their homes for the families in their communities. Whether you operate a licensed home childcare under Ontario's Child Care and Early Years Act or an informal unlicensed arrangement, you are self-employed and must report your income and claim your deductions on Form T2125.

The good news: home daycare has one of the most favourable HST treatments in Canadian tax law (fully exempt), a generous range of deductible expenses, and — if you claim correctly — a tax bill that accurately reflects the costs of running your operation.

1. All Childcare Income Is Taxable

Every dollar received for childcare services is business income, regardless of the source:

• Parent fees (weekly, monthly, or per-diem)
• Ontario childcare subsidies paid directly to you (or received through a parent)
• Canada-Wide Early Learning and Child Care (CWELCC) system fee reductions (amounts you receive from the government to subsidize fees)
• Occasional, drop-in, or emergency care fees
• Late pickup fees
• Registration or deposit fees (when they become non-refundable)

2. HST: You Are Exempt

This is the most clear-cut HST rule in the childcare sector:

Childcare services for children 14 years of age and under, provided for less than 24 hours per day, are HST-exempt under Schedule V, Part IV of the Excise Tax Act.

This means:

• You never charge HST on childcare fees — regardless of how much you earn
• You are not required to register for HST (since all your services are exempt)
• You cannot claim ITCs on business purchases (the trade-off for exempt status)
• The $30,000 small supplier threshold is irrelevant — you could earn $200,000 in childcare fees and still be exempt

3. The Large Expense: Your Home

For home daycare operators, the home is the business. This creates the most significant and most complex deduction category.

Home Office (Business Use of Home) Calculation

Deduct the business-use portion of home expenses. The calculation typically uses either:

1. Space method: daycare area ÷ total home area. If you use the main floor (1,000 sq ft) of a 2,000 sq ft home for daycare, the business-use rate is 50%.
2. Hours method: (hours per week used for daycare × weeks per year) ÷ (total hours in a year × relevant floor area). This is sometimes more accurate for spaces shared between personal and daycare use.

Apply the business-use percentage to:

• Rent (if renting)
• Mortgage interest (not principal repayment)
• Property taxes
• Utilities (heat, electricity, water)
• Home insurance
• Internet (or claim business portion separately)
• Maintenance and repairs to the daycare area

4. Food and Meals Provided to Children

If you provide meals and snacks to children in your care, the food costs are deductible — but you must separate childcare food costs from household grocery costs.

Acceptable methods for allocating food costs:

• Per-meal estimate: Estimate a reasonable cost per meal or snack per child, multiply by the number of meals served and attendance days. Document this calculation.
• Receipt method: Keep separate receipts for food purchased specifically for daycare (bulk snacks, lunch supplies) distinct from household groceries.
• Proportional method: Track total monthly food spending and allocate proportionally based on the number of daycare-days vs. family meals.

CRA has accepted various allocation methods as long as they are reasonable and documented. Be conservative and consistent year-over-year.

5. Childcare Supplies and Equipment

Supplies and equipment purchased for the daycare are fully deductible:

• Toys, games, puzzles, and play equipment
• Art and craft supplies (paint, paper, playdough, crayons)
• Baby and toddler furniture (cribs, high chairs, change tables) — CCA Class 8 if over $500
• Safety equipment (outlet covers, safety gates, first aid kit)
• Sleep cots or mats for nap time
• Outdoor play equipment (slides, sandboxes) — CCA Class 8
• Stroller or wagon for outings
• Cleaning supplies specific to the daycare
• Books and educational materials

6. Professional Fees, Training & Licensing

• Ontario Ministry of Education home daycare licence fee: deductible
• Agency affiliation fees (if you operate under a licensed home childcare agency): deductible
• RECE (Registered Early Childhood Educator) annual College fees: deductible
• CPR/first aid certification and renewal: deductible
• Early childhood education professional development courses: deductible
• Police record check (Vulnerable Sector): deductible
• Fire inspection fees: deductible
• Accountant or bookkeeping fees: deductible

7. Insurance

• Home childcare liability insurance: Fully deductible. This is separate from your standard home insurance and is highly recommended.
• Additional home insurance premium: If your insurer charges an additional premium because you run a business in your home, the increment is deductible as a business expense (the base home insurance is claimed as part of the home office deduction).

8. Vehicle Expenses

If you use your vehicle for daycare-related trips (outings with children, supply runs, training sessions), the business-use portion is deductible. Keep a mileage logbook. Note that driving children to activities in your personal vehicle during care hours is business use.

9. Phone and Technology

• Business portion of cell phone (parent communications): deductible
• Childcare management software (Brightwheel, HiMama, Lillio): deductible
• Accounting software: deductible

10. CPP Contributions

Home daycare operators are self-employed and pay CPP on both the employee and employer sides:

• Rate: 11.9% combined on net self-employment income up to $68,500 (after $3,500 basic exemption)
• At $40,000 net income: approximately $4,341 total CPP contribution
• The employer half (~$2,170) is a deductible business expense on T2125
• The employee half is claimed as a non-refundable credit on the T1

11. Providing Receipts to Parents

Parents can deduct childcare expenses on their T1 return (up to $8,000 for children under 7, $5,000 for children 7–16). To claim this deduction, they need a receipt from you showing:

• Your full name and home address
• Your Social Insurance Number (SIN) or business number
• The child's name and date of birth
• The period of care
• The total amount paid for the year

Issue annual receipts in January or February for the previous calendar year. Parents will also ask for your SIN, which you are legally required to provide for this purpose. This is a normal and expected part of running a home daycare.

12. Quarterly Instalments

If your net tax owing exceeds $3,000 in the current year and either of the two prior years, you must pay quarterly instalments (March 15, June 15, September 15, December 15). Many home daycare operators fall into this category if they care for 3–5 children full-time.

Set aside 20–30% of every parent payment into a dedicated tax savings account to cover income tax, CPP, and any instalment obligations.

Frequently Asked Questions