Running a Home Daycare: Tax Deductions and Grant Income Reporting — CPA Firm Near You, Montreal

Introduction

Home daycare providers in Quebec operate under a unique tax framework. Income may come from parents, government subsidies, or grants, while expenses range from food and toys to utilities and home maintenance. CRA and Revenu Québec have very specific rules for what daycare operators can deduct — and incorrect reporting can lead to reassessments or repayment of subsidies. This guide explains how to properly report daycare income, claim allowable deductions, and stay compliant, with support from a CPA firm near you in Montreal.

Legal and Regulatory Framework

Under the Income Tax Act and the Taxation Act of Quebec, home daycare operators are considered self-employed and must report:
• Parent-paid fees
• Government daycare subsidies
• Grants (e.g., childcare support grants)
• Reimbursements for meals or supplies

Key rules include:
• Income must be reported in the year received
• Grants and subsidies are fully taxable
• GST/QST registration is not required for childcare services (they are exempt services)

Allowable deductions include:
• Food and snacks for children
• Toys, books, and craft supplies
• Furniture and play equipment
• Cleaning supplies, laundry, and sanitation
• Home insurance and liability insurance
• Utilities and internet (proportional use)
• Home maintenance tied to daycare operations
• Wages for assistants or substitutes
• First aid, CPR training, and certifications

A portion of home expenses may be deducted using square footage and time-use calculations.

Key Court Decisions

Courts have ruled that:
• Daycare operators must prorate household expenses based on actual business use
• Personal groceries cannot be mixed with daycare food expenses
• Renovations that improve the entire home must be prorated
• Expenses must be reasonable and supported with receipts
• Home insurance increases related to daycare activities are deductible
• Grants must be reported even when used for daycare supplies

Courts emphasize documentation and reasonable allocation.

Why CRA and Revenu Québec Target Home Daycares

Audits occur frequently because operators often:
• Mix personal and daycare expenses
• Lack receipts for food and supplies
• Deduct excessive home expenses
• Fail to report grant income
• Incorrectly allocate utilities and rent
• Have inconsistent attendance or fee records
• Report lower income than subsidy statements show

Auditors compare:
• Parent fee receipts
• Government records
• Attendance logs
• Expense receipts
• Household bills

Mackisen Strategy

At Mackisen CPA Montreal, we help home daycare providers stay compliant while maximizing deductions. We:
• Track all daycare income, grants, and subsidies
• Calculate proper home-use allocations
• Categorize allowable vs non-allowable expenses
• Prepare annual tax returns with childcare exempt rules
• Reconcile subsidy payments to daycare income
• Build documentation systems for receipts and attendance logs
• Resolve inconsistencies before CRA or RQ audits

Real Client Experience

A Montreal daycare operator underreported grant income relative to attendance reports. CRA reassessed her. We rebuilt subsidy reconciliation schedules and corrected filings, eliminating penalties. Another provider lacked receipts for food and supplies; we restructured expense tracking for future years and saved remaining allowable deductions.

Common Questions

Are daycare services taxable for GST/QST?

No. Childcare services are exempt.

Can I deduct groceries?

Yes — only food purchased specifically for daycare children.

How do I deduct home expenses?

By calculating both the square footage used and the percentage of time the daycare operates.

Are grants and subsidies taxable?

Yes. All grants must be reported as income.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps home daycare providers stay compliant and maximize tax deductions. Whether fully subsidized or private-fee based, our expert team ensures precision, transparency, and audit protection.