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Nanny Taxes in Canada

By  Acton Accounting |   | Posted in " Accountants, accounting services, bookkeepers, bookkeeping services, corporate tax, personal tax, September 2012, Tax & Benefits, Tax accountants, tax filing, tax return preparation, tax services "

When tax time comes around each year, Canadian nannies often find themselves in a confusing situation. The CRA may classify nannies as employees, but many times, the hiring family will advise their nannies that they are independent contractors, which relieves them of any tax obligations. So, who is right and who is wrong in this scenario? The Canadian Revenue Agency clearly states that if the nanny’s employer controls any aspect of their job, including how the job is performed, hours that the job is performed, and specific job duties, the nanny is an employee.

How Does The Employer Report Nanny Tax?

If the employer is following the rules of the CRA, they are required to deduct a specific percentage from the nanny’s weekly pay, based on what they earn. The typical nanny salary is anywhere from $300 to $500 dollars a week, and once the tax is deducted, the employer must remit this amount to the CRA. If this is done correctly, the nanny is indeed an employee and will be able to file taxes. When a nanny files their tax return, they can also take into consideration costs for mileage and various supplies, and these can be entered in as a deduction.

What If The Employer Does Not Report Nanny Tax?

If the employer does not report and deduct a weekly nanny tax, chances are the employer is hoping to avoid any tax obligations altogether. If the employer pays in cash, it is important for the nanny to keep a record of the amount of cash received each week. Even if the employer has no intention of reporting the nanny pay to the CRA, the nanny is responsible to report their earnings as an independent contractor. The nanny will then be subject to an independent contractor/self employment tax, based on the gross earnings for the entire year. This tax can be pretty high for independent contractors, so it is always a good idea to find out as soon as possible what the employer’s intentions are as far as nanny taxes. If the nanny is comfortable working as an independent contractor, they can put aside a small percentage of their earnings each week in order to cover their tax payment when it is due.

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