Form T778, Child Care Expenses Deduction, is the official Canada Revenue Agency (CRA) form used by Canadian taxpayers to calculate and claim the deduction for child care expenses paid during the tax year. It is the Canadian equivalent of U.S. Form 2441 (Child and Dependent Care Expenses) and is governed by section 63 of the Income Tax Act (R.S.C., 1985, c. 1, 5th Supp.). Unlike the U.S. system which provides a tax credit, Canada offers a tax deduction — meaning eligible child care expenses reduce the taxpayer's taxable income rather than directly reducing tax payable.

The child care expense deduction is available to taxpayers who paid for child care services to enable them (or their spouse or common-law partner) to earn employment income, carry on a business, attend a designated educational institution, or conduct research under a grant. Eligible children must be under 16 years of age at some time during the year, or any age if the child has a mental or physical infirmity and qualifies for the disability tax credit (Form T2201). The deduction is calculated on Form T778 and entered on line 21400 of the T1 General Income Tax Return.

The deduction is subject to three caps: the actual amounts paid to eligible care providers, the per-child annual limit ($8,000 for children under 7, $5,000 for children aged 7 to 16, and $11,000 for disabled children), and two-thirds of the lower-income parent's earned income. The claimant receives the lesser of these three amounts as their deduction. This three-way test ensures the deduction is proportionate to both the actual cost of care and the claimant's ability to earn income.

Form T778 is needed by any Canadian taxpayer who paid child care expenses during the tax year for an eligible child. The most common scenario is working parents who pay for daycare, day camp, or a nanny while they earn employment income. However, the deduction also applies to parents attending school full-time or part-time at a designated educational institution, parents conducting eligible research under a grant, and self-employed individuals who incur child care costs to operate their business.

The form must be completed and attached to the T1 General Income Tax Return for the tax year in which the child care expenses were paid. Generally, the lower-income spouse or common-law partner must be the claimant. However, the higher-income spouse may claim the deduction if the lower-income spouse was a full-time student for at least one month, was physically or mentally incapacitated for at least two weeks, was confined to prison for at least two weeks, or was living apart from the higher-income spouse for at least 90 consecutive days due to a breakdown in the relationship. Single parents always claim the deduction themselves.

The T778 is also needed when parents want to claim expenses for day camps and overnight camps. Day camp expenses are treated as regular child care expenses subject to the annual per-child limit. Overnight camp and boarding school expenses have a separate weekly limit: $200 per week for children under 7, $125 per week for children 7 to 16, and $275 per week for disabled children. These weekly limits apply to the boarding/camp portion only; regular daycare expenses during the rest of the year are subject to the annual limits.

Part A of Form T778 collects information about each eligible child: full name, date of birth, relationship to the claimant, whether the child is eligible for the disability tax credit, and the total child care expenses paid for that child. The child's age determines the per-child annual limit: $8,000 for children born in 2018 or later (under 7 at year-end for the 2024 tax year), $5,000 for children born between 2008 and 2017 (aged 7 to 16 at year-end), and $11,000 for any child with an approved Disability Tax Credit Certificate (Form T2201) regardless of age.

Part B requires details about each care provider: the provider's full name, complete address, type of care (daycare centre, day camp, boarding school, in-home caregiver, nanny, babysitter), the provider's Social Insurance Number (for individual caregivers) or Business Number (for organizations), and the total amount paid to that provider. The CRA uses this information to verify the legitimacy of the claim and to cross-reference with the provider's reported income. Payments to related persons under 18 or to the child's own parent are ineligible.

Part C contains the deduction calculation. The claimant enters the total expenses paid, the sum of all per-child annual limits, the claimant's earned income, and two-thirds of that earned income. The deductible amount is the smallest of these three figures. Earned income is defined specifically in section 63 as employment income (before deductions), net self-employment income, amounts received as research grants, and training allowances under the National Training Act or provincial programs. It explicitly excludes Employment Insurance benefits, Old Age Security, Canada Pension Plan benefits, pension income, investment income, rental income, and social assistance. The resulting deduction is entered on line 21400 of the T1 General return and directly reduces taxable income, providing tax savings at the claimant's marginal tax rate.