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Starting a Licensed Daycare in BC: Tax, Payroll and Bookkeeping Setup

August 27, 2026
Articles

The Five Financial Systems Every BC Daycare Needs From Day One

If you are opening a licensed child care program in BC, here is the financial setup you need in place before your first child walks in, not after your first busy season:

A business structure and a business number. Sole proprietor to start for most home based programs, a corporation once profit is consistently high or you have staff and liability exposure. If you are right at the beginning, our checklist on what to register when starting a business in BC and the guide to whether you need a business number in Canada set the order.
A CRA payroll account if anyone other than you is getting paid. This is not optional and it opens in about ten minutes.
A bookkeeping system that separates parent fees from government funding. These are two different money streams with different reporting, and mixing them is the number one thing that turns a simple year end into an expensive one.
WorkSafeBC registration. Mandatory for BC employers, and licensed programs get asked for the clearance letter.
A receipt process for parents. Legally specific, and if you get it wrong every family in your program has a problem with their own tax return.

The one thing almost nobody expects: child care is GST exempt, and that is not good news. More on why below.

Here is the honest summary before we go deep. A daycare is a low margin, high compliance business. The money is not made by finding clever deductions, it is made by not leaking cash through payroll penalties, misapplied funding and a fee structure that quietly runs below cost. Set the plumbing up properly once and the rest of it is maintenance.

Sole Proprietor or Incorporation for a Childcare Business?

Most home based programs start as sole proprietors and that is usually the right call, and the wider trade offs are laid out in sole proprietorship vs incorporation. You report on form T2125 with your personal return, the same way any other self employed person does, which our guide to tax filing for self employed professionals in Canada walks through, losses in year one can offset other income (a real benefit if you or a spouse have employment income), and setup costs are nearly zero.

Incorporation starts to make sense at a fairly predictable point:

Situation	Better fit	Why
Home program, one or two staff, profit under about $60,000	Sole proprietor	Simpler, cheaper, losses usable personally
Profit consistently above what you need to live on	Corporation	Small business rate of about 11% in BC on the first $500,000, so you defer personal tax on money you leave in
Leased centre, five plus staff, real liability exposure	Corporation	Liability separation matters more than the tax
Planning to sell the business one day	Corporation	Share sale may qualify for the lifetime capital gains exemption
Partner or investor involved	Corporation	Shares, agreements and clean ownership splits

That 11% comes from the small business deduction and corporate tax rates in Canada, and the setup side is priced out in how much it costs to incorporate in BC. The tax deferral only helps if you are leaving profit inside the company. If you take every dollar out to live on, incorporation gives you almost nothing and costs you a corporate return, a separate set of books and annual filings. That is the calculation people get backwards most often.

One more thing worth flagging: paying a spouse or adult child from the business is fine, but the amount has to be reasonable for work actually performed, and if you incorporate, the tax on split income rules for paying a spouse or children can apply to dividends. Wages for real work are the safer route in a daycare.

GST and Childcare Services

Why Most Childcare Is Exempt and Why That Is Not Good News

Child care services are GST exempt under the Excise Tax Act. Specifically, the exemption covers services whose primary purpose is care and supervision of children 14 years of age or under for periods normally less than 24 hours a day.

So you do not charge GST on your daycare fees. Great, right?

Not quite. There is a critical difference between exempt and zero rated:

	Exempt (child care)	Zero rated (e.g. basic groceries)
Charge GST to customers	No	No, rated at 0%
Claim input tax credits on your costs	No	Yes
Recover GST on rent, supplies, toys, renovations	No	Yes
Counts toward the $30,000 registration threshold	No	Yes

Because your supplies are exempt, the GST you pay on everything you buy is a permanent cost. GST on your commercial rent, on the play equipment, on the licensing consultant, on the renovation to meet Licensing standards, all of it stays with you. You do not register, you do not file, and you do not get it back.

This is why a daycare budget has to be built with GST inclusive numbers. A $60,000 renovation is really $63,000. If you plan around the pretax number you will be short.

Where GST Does Apply

Not everything you might sell is exempt. Watch for:

Programs for children over 14. The exemption caps at 14.
Instruction rather than care. Music lessons, gymnastics, tutoring, coaching and academic instruction are separate taxable supplies, even if the same kids are involved.
Transportation on its own, including supervised transportation billed separately from care.
Renting your space to another operator or for evening events.
Consulting or training you provide to other operators, which is a common side income for experienced licensees.

If those taxable revenues exceed $30,000 in four consecutive quarters you have to register for GST, and then you are running a mixed business: charging GST on part of your revenue and claiming input tax credits on only the portion of costs that relate to taxable activity. Doable, but it is a real bookkeeping change, not a rounding error. Our guide on when you have to register for GST/HST covers the threshold mechanics in detail.

Organized daycare playroom with educational toys

Home Based Daycare: Deductions and the Space Calculation

If you run the program out of your home, business use of home is usually your biggest single deduction, and it is also the one most people calculate wrong in a way CRA can spot instantly. The general rules are in our home office deduction guide for employees, the self employed and corporations, but a daycare has its own twist.

Business Use of Home Percentage With Shared Space

The rooms you use for daycare are usually also your living room and your kitchen. CRA’s method accounts for that with two fractions: space and time.

CRA’s own worked example, which is worth memorizing because it is the template auditors expect:

James runs a daycare 10 hours a day, 5 days a week, using 35 square metres of his 100 square metre home. His total home expenses for the year are $5,800.

(10 ÷ 24) × (35 ÷ 100) × $5,800 = $845.83

$845.83 × (5 ÷ 7) = $604.16 deductible

That is the shape of a defensible claim. Notice how much the two fractions cut it down. People who claim 35% of their home expenses because 35% of the floor space is used are claiming roughly four times too much.

Which home expenses go into the pot:

Heat, electricity and water
Home insurance
Maintenance and repairs
Property taxes
Mortgage interest (not principal) or rent

A hard rule to remember: business use of home cannot create or increase a loss. It is capped at your net income before the claim. Any unused amount carries forward to future years, so nothing is wasted, it is just deferred.

Also worth knowing before you get creative: claiming capital cost allowance on the portion of your home used for the business can jeopardize part of your principal residence exemption when you sell. For almost every home daycare the answer is do not claim CCA on the house, because it can cost you part of the principal residence exemption when you sell. The current deductions are worth having, the future tax bill on your home is not.

Food, Supplies, Toys and Equipment

Food is usually the second largest cost and the most poorly documented. Canada has no flat rate or simplified per meal deduction for daycare food, whatever you may have read on American blogs where the IRS does publish standard meal rates. In Canada you deduct actual costs and you need to be able to support them.

The workable method:

Do a separate grocery run for daycare food where you can, with its own receipt. This single habit solves ninety percent of the problem.
Where you shop once for everything, keep the receipt and highlight the business items, or apply a consistent, documented ratio based on people fed (for example, six children and two adults means six eighths of the shared food, applied only to the meals actually served during care hours).
Keep a simple menu log. It costs you five minutes a week and it is the difference between a deduction that survives review and one that does not.

For the rest of your spending, the split between an expense and an asset matters:

Item	Treatment
Craft supplies, diapers, wipes, cleaning products	Expense in full
Food and snacks	Expense, business portion
Toys and books under a few hundred dollars	Usually expense in full
Playground structure, commercial fridge, furniture sets	Capital asset, deducted over time through CCA
Vehicle used for daycare errands and field trips	Mileage log, business percentage only
Licensing fees, criminal record checks, first aid certification	Expense in full
Renovations to meet Licensing standards	Capital, added to the cost of the building

Keep a mileage log if you drive for the business. Not an estimate at year end, an actual log. CRA disallows more vehicle claims than almost any other category, and the reason is always the same: no contemporaneous record.

Preschool teacher working with children in a classroom

Payroll for Daycare Staff

The moment you hire an ECE, an assistant or a part time helper, you are an employer. There is no informal version of this, and “she only works Fridays” is not an exception.

CRA Payroll Account and Remittances

You open an RP payroll account under your business number, then every pay period you withhold CPP, EI and income tax, add the employer portions, and remit. If you would rather not run that in house, our payroll services for BC employers handle the withholding, the remittances and the slips.

Your remittance schedule depends on your average monthly withholding:

Average monthly withholding	Remitter type	When you remit
Under $1,000 and new account with clean history	Quarterly (new small employer)	Quarterly
Under $3,000 with a clean compliance record	Quarterly (small employer)	Quarterly
Under $25,000	Regular	By the 15th of the following month
$25,000 to $99,999.99	Accelerated threshold 1	Twice a month
$100,000 or more	Accelerated threshold 2	Up to four times a month

Most daycares are quarterly or regular remitters. Late remittances are penalized on a sliding scale that starts at 3% and reaches 10%, plus 20% for repeat failures, and CRA applies it automatically. One day late is a real penalty, not a warning, and the rest of the avoidable ones are listed in our guide to strategies to avoid CRA penalties.

Your other annual obligations: T4 slips filed and issued by the last day of February, one of several Canadian payroll year end deadlines, and a Record of Employment within five calendar days of an interruption in earnings. ROEs matter enormously in this industry because of maternity leaves and seasonal closures, and getting them wrong delays an employee’s EI, which is the kind of thing that ends good working relationships. Our complete guide to the Record of Employment in Canada covers the codes and the five day rule. Our guide to T4 vs T4A vs T5 and which slip you have to issue covers which one goes with which kind of payment, and if February is not a month you want to spend on slips, we offer T4 preparation for employers.

A warning specific to this sector: do not pay a regular ECE as a “contractor” to skip payroll. CRA looks at control, tools, chance of profit and integration into the business, exactly as set out in the employee vs contractor CRA rules. An educator who works your hours, in your facility, with your equipment, following your program, is an employee under any analysis. Reassessment means the employer and employee portions of CPP and EI, plus interest and penalty, going back years.

BC Employment Standards for Childcare Workers

BC rules that bite most often in child care, on top of the general BC payroll requirements for employers:

Minimum wage is $18.25 per hour as of June 1, 2026.
Vacation pay of at least 4% of wages, rising to 6% after five years. Two weeks of vacation after 12 months, three weeks after five years.
Statutory holiday pay for employees who qualify, which matters because most centres close on stat days.
Split shifts, minimum daily pay and overtime rules all apply, and part time staff are covered like everyone else.

WorkSafeBC Registration and Classification

WorkSafeBC registration is mandatory for BC employers, and licensed child care programs are commonly asked to produce a clearance letter. The average base premium rate for 2026 is $1.55 per $100 of assessable payroll, and your actual rate depends on your classification unit. Register when you hire, not when someone gets hurt. Our guide to WorkSafeBC for employers, registration, premiums and 2026 rates walks through classification and how the premiums are actually calculated, and our WCB employer registration service can open the account for you.
Our other tax services:

Bookkeeper calculating expenses from receipts and records

Government Funding and How to Account for It

This is the part that makes BC child care accounting genuinely different from other small businesses.

CCFRI Fee Reduction Payments

Under the Child Care Fee Reduction Initiative, the province pays you and you reduce what parents pay. Maximum monthly reductions for full time care in 2026 to 2027:

Care category	Group child care	Family or in home care
Infant, 0 to 18 months	$900	$600
Toddler, 18 to 36 months	$900	$600
3 years to Kindergarten	$545	$500
Kindergarten	$320	$320
Grade 1 to age 12	$115	$145
Preschool	$95	Not applicable

Out of pocket parent fees are not reduced below $200 per month or $10 per day for full time care. To participate you must receive CCOF base funding, apply each funding year (April 1 to March 31), align your fees and closures with CCFRI policy, and notify parents in writing of your participation and their reduction amount.

ECE Wage Enhancement

Certified early childhood educators at participating centres can receive up to $6 per hour in wage enhancement, and effective January 1, 2026 providers also receive an additional 19.90% for statutory benefits and premiums, covering CPP, EI, WorkSafeBC, vacation and statutory holiday pay.

The accounting point people miss: the wage enhancement runs through your payroll. It is included in the employee’s gross pay for statutory deduction purposes. It is not a bonus you hand over separately and it is not tax free to the employee. You also have to verify certificates are valid, notify eligible ECEs and collect written acknowledgement.

Why Funding Must Be Tracked Separately From Parent Fees

Three reasons, all of them practical:

It is all taxable income. CRA is explicit that your gross income includes payments from parents as well as subsidies and provincial grants. Funding is revenue, not a rebate, and it goes on your return. The one exception: a grant specifically to acquire daycare property is not income, it reduces the capital cost of the property instead.
The province can ask for it back. Funding is conditional on enrolment, fees and compliance. If you cannot show which dollars came from where, a reconciliation request becomes a guessing game you will lose.
Your true cost per space is invisible without it. If funding and fees sit in one revenue account, you have no idea whether your infant room actually pays for itself. That is the number that decides whether you expand.

Set up separate income accounts from day one: Parent Fees, CCFRI Funding, CCOF Base Funding, ECE Wage Enhancement, Other Grants. It takes ten minutes in any bookkeeping software and saves days later. Our comparison of the best accounting software for Canadian small businesses covers what works at this scale.

Not sure whether your funding is being recorded correctly? This is one of the most common things we clean up for BC child care operators at Maxpro Financials, usually after a year or two of everything landing in one revenue line. We will set the chart of accounts up properly, reconcile what has already been received, and tell you what each space actually earns. See our accounting services for daycares, or book a free initial consultation.
Our payroll and financial services:

Receipts for Parents: What You Must Issue

Parents claim child care expenses on line 21400 using form T778, and their claim depends entirely on your receipt. CRA is specific: if an individual provided the services, the receipt must show that individual’s social insurance number.

A compliant receipt has:

Your name and address, or the centre’s name and address
Your SIN if you are an individual provider, or the business number if you are a corporation
The child’s name
The period the care covers
The amount actually paid by the parent, net of any CCFRI reduction
Date and signature

That fifth point is where things go wrong. If you invoice the full fee and the province pays part of it, the parent can only claim what they paid. Issuing receipts for the gross amount overstates every family’s deduction, and when CRA catches it, it is your receipt that is wrong.

Issue receipts once a year in January for the prior year, or monthly if you prefer, but do it in writing and keep a copy of every one.

The Five Most Common Daycare Bookkeeping Mistakes

None of these are exotic. They are the same items that sit on our small business bookkeeping checklist, just with a child care label on them.

One revenue account for everything. Fees, CCFRI and wage enhancement all landing in “Sales”. Fixable in an afternoon at setup, painful to unwind after two years.
Treating funding as non taxable. It is income. Every dollar of it. Operators who assume otherwise get a nasty surprise at year end and often have not set aside tax.
Paying staff as contractors. Discussed above. This is the single most expensive mistake in the sector.
Claiming full floor area for home use. Missing the time fraction turns a legitimate $600 claim into a $2,400 red flag.
No separation between personal and business banking. One account for daycare and household means every deposit is arguable and your bookkeeping cost doubles. Open a second chequing account. It is free at most credit unions.

Frequently Asked Questions

Do I need to register a business for an unlicensed home daycare?

If you are earning income from it, yes, you report it as business income on T2125 whether or not you hold a licence. Registration of a business name is separate and depends on whether you operate under your own legal name. Licensing status affects CCFRI eligibility, not whether the income is taxable.

Is government funding taxable income?

Yes. CCFRI, CCOF base funding and wage enhancement are all included in gross business income. The only carve out is a grant provided specifically to buy daycare property, which reduces the capital cost of the property instead of being reported as income.

Can I deduct renovations to make my home daycare compliant?

Not as a current expense. Renovations that improve the property are capital, added to the cost of the building and recovered through CCA if you claim it. Repairs that simply maintain what is there, like fixing a gate or replacing a broken window, are current expenses. Claiming CCA on your home has principal residence consequences, so get advice before you do.

Do I charge GST on childcare services?

No. Care and supervision of children 14 and under for periods normally under 24 hours is exempt. That also means you cannot recover the GST you pay on your own costs, so budget with GST included.

Do I need payroll for one part time helper?

Yes, if they are an employee, and one part time helper working your hours in your facility almost always is. Open the payroll account, withhold and remit. A quarterly remitter with under $1,000 of monthly withholding files four times a year, which is not a heavy burden.

What if I care for my own children too?

Your own children are not paying customers, so they generate no income, but they do affect your expense allocations. If you feed eight children and two are yours, only six eighths of the shared food is a business cost. The same logic applies to supplies and to the time fraction in the space calculation.

How do I report child care fees to parents at year end?

A written receipt showing your name and address, your SIN if you are an individual, the child’s name, the period covered and the amount the parent actually paid net of any CCFRI reduction. Parents use it for line 21400 on their return.

Can I pay my spouse to help with the daycare?

Yes, if they actually do the work and the amount is reasonable for what they do. Run it through payroll like any other employee. Paying a spouse who does nothing is a deduction CRA will deny, with interest.

Do I need WorkSafeBC coverage if I am the only person working in the daycare?

Registration is generally required once you have workers. As a sole proprietor with no employees you are not automatically covered yourself, but you can apply for personal optional protection, and many operators do given the physical nature of the work.

What records do I need to keep and for how long?

Six years from the end of the tax year they relate to, in line with the CRA record keeping requirements. Bank statements, receipts, payroll records, funding correspondence, attendance and enrolment records, and copies of parent receipts. Digital copies are acceptable and easier to keep.

Daycare Accounting, Handled

Child care in BC runs on tight margins and thick paperwork. The operators who do well are not the ones who found a secret deduction, they are the ones whose books are clean enough that funding reconciliations take an hour instead of a week, whose payroll never triggers a penalty, and who actually know which age group pays for itself.

At Maxpro Financials we work with licensed and home based child care providers across BC on exactly this: choosing between sole proprietor and incorporation with the numbers in front of you, setting up payroll and WorkSafeBC properly the first time, structuring your chart of accounts so CCFRI and wage enhancement are traceable, and preparing the year end so nothing about it is a surprise.

If you are opening a program, or you have been running one for two years and suspect the books are not telling you the truth, book a free initial consultation and we will go through it with you.

Accounting and payroll services in your city: