In Canada, the daily stipends and allowances paid to foster parents by provincial child welfare agencies are completely tax-free. Under paragraph 81(1)(h) of the Income Tax Act, you do not need to report this social assistance income on your tax return, meaning it will not increase your tax bill.
Opening your home to a vulnerable child is one of the most generous and important commitments a family can make. Whether you are fostering a child in Manitoba through Child and Family Services (CFS) or working with a Children’s Aid Society in Ontario, the emotional rewards are immense. However, raising a child is expensive, which is why provincial agencies provide foster parents with daily stipends (per diems) to cover food, clothing, and shelter costs.
Many new foster parents worry that receiving these regular payments will push them into a higher tax bracket or result in a massive bill from the Canada Revenue Agency (CRA). 📊 Thankfully, the Canadian government recognizes that foster parents are volunteers providing a critical social service, not employees earning a salary. Understanding how the CRA views your fostering allowance is essential for managing your household budget without fear of unexpected tax penalties.
Step-by-Step Process: Understanding Foster Care Tax Exemptions
Navigating taxes can be stressful, but for foster parents, the rules are surprisingly straightforward. You simply need to ensure that your specific caregiving arrangement qualifies for the federal exemption.
Step 1: Identifying the Source of the Payments
To qualify for the tax exemption, the money must come from a recognized government body or a registered charity acting on behalf of the government. 💻 This includes payments from provincial or territorial child welfare agencies, Indigenous child and family service agencies, and publicly funded specialized foster care programs. If you are informally taking care of a relative’s child and they hand you cash, that is not an official foster care per diem.
Step 2: Applying Paragraph 81(1)(h) of the Income Tax Act
The legal protection for your foster income is found in paragraph 81(1)(h) of the federal Income Tax Act. This section explicitly states that social assistance payments made for the benefit of a foster person residing in your principal place of residence are excluded from your income. Because it is excluded, it is fundamentally invisible to the CRA for taxation purposes.
Step 3: Filing Your Annual Tax Return Correctly
When you sit down to file your T1 General tax return, you might wonder which line requires your foster income. ✍️ The answer is none of them. Because the income is fully exempt, you do not report your standard foster care per diems on your tax return at all. You only declare your regular employment income, business income, or other taxable sources.
Step 4: Maintaining Accurate Financial Records
Even though the money is tax-free, you must maintain excellent records. The CRA can still audit your finances if they see large deposits in your bank account that do not match your declared employment income. Keep all statements, remittance slips, and annual summaries provided by the child welfare agency for at least six years to prove the source of these non-taxable funds.
Comparing Foster Care Allowances to Other Incomes
It is important not to confuse fostering with running a private home daycare. 🔍
| Type of Caregiving | Tax Status with the CRA | Reporting Requirements |
|---|---|---|
| Agency Foster Care (Per Diems) | 100% Tax-Free. | Do not report on your tax return. |
| Home Daycare Business | Fully Taxable Business Income. | Must report income and deduct business expenses. |
| Respite Care (Private Pay) | Taxable if paid privately by parents. | Must be declared as income. |
How Much Does Foster Care Pay in Canada?
Foster care per diems are designed to reimburse expenses, not to replace a full-time salary. 💰 While rates vary wildly depending on your province and the specific medical or behavioural needs of the child, basic daily rates generally range from $30 to $50 CAD per day. For children requiring specialized, therapeutic, or intensive medical care, the per diem can rise to $80 to $120+ CAD per day. Because this is tax-free, every dollar goes directly toward the child’s needs.
How Long Does It Take to Become a Foster Parent?
Before you receive any tax-free allowances, you must undergo a rigorous approval process. ⏱ In most Canadian provinces, becoming an approved foster home takes anywhere from 6 to 12 months. This timeline includes mandatory PRIDE (Parent Resources for Information, Development, and Education) training, extensive criminal and child abuse registry checks, medical clearances, and multiple in-home interviews with a social worker.
Frequently Asked Questions (FAQ)
Do foster payments create RRSP contribution room?
No. Because foster care per diems are exempt from taxation, they do not count as “earned income.” Therefore, these payments will not generate any additional Registered Retirement Savings Plan (RRSP) contribution room.
Can I claim the Canada Child Benefit (CCB) for a foster child?
Generally, no. When a child is placed in the care of a child welfare agency, the agency receives the Children’s Special Allowances (CSA) instead of the CCB. You receive your per diem from the agency directly.
Can I claim child care expenses for a foster child?
No. If the provincial agency is already paying you a per diem that covers or reimburses you for daycare and babysitting costs, you cannot “double dip” and claim those same child care expenses as a deduction on your personal tax return.
What if I run a customized foster group home?
If you operate a specialized group home with staff and operate it as a structured business (rather than fostering a child in your principal personal residence), the CRA may classify this as a business. You must consult a tax accountant, as the standard 81(1)(h) exemption may not apply to commercial operations.
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