Holding deposits

[Ottawaroses]

I have a family interested in care for Jan. 2016. They have to pay a holding fee to be applied against care when it is started. If I receive money in 2015 but care is in 2016 when do you give the family a receipt for income tax purposes? I have always had care start in the same year I received the deposit.
:unsure:

[Wonderwiper]

In my opinion....you said that the holding fee is applied to their regular fees so technically you are not "using" that money until they actually start care so I would issue them a receipt next year.

[Crayola kiddies]

I disagree ... All money you receive in 2015 goes on your 2015 taxes and therefore you issue a receipt for that money .... It doesn't matter when you use the money

[Lee-Bee]

There were pretty clear rules on this when I took the daycare tax class at the CCPRN. That said I can't for the life of me remember what the rules were!

I do know it wasn't just a matter of opinion it was firmly laid out when to give the tax receipt. I am sure some ladies on here will know for sure.

[5 Little Monkeys]

I apply the deposit towards end of care (so who knows when that will be) but I've always wrote it on their first year end receipt. I think there was a thread on here before where that was explained that it's the wrong way. Because it is for care at a later date, it is to be claimed in the year it us used.

[Wonderwiper]

I meant what 5 little monkeys said ha ha! I also use deposit for last days of care but claim the deposit as income when they start.

[5 Little Monkeys]

I meant what 5 little monkeys said ha ha! I also use deposit for last days of care but claim the deposit as income when they start.

Will you be changing the way you do it this year? I have a new one (well old one lol, coming back from a mat leave but only one day a week) starting next week and wondering if I shouldn't include the deposit on their year end this year like I normally would have done.

[Wonderwiper]

I will continue on as usual...have not had a new client in 3 years so a bit rusty on that part ha ha!

I don't have a holding fee but take 2 week deposit. It has always been paid to me when they fill out contract. I consider it income from the day they start care....even though I am technically saving it for their last 2 weeks of care. I guess I don't really consider it as "mine" before they actually start care so I would not claim a deposit given to me in 2015 for a client not starting until 2016 because something may happen where I return the deposit before they start. I have never been in this situation and my contract says deposit is non refundable but I'm sure things change sometimes.

Not sure what your situation is? You are getting a new deposit for child coming back 1 day per week?

[5 Little Monkeys]

I only introduced the deposit about a year or more ago. When they first started with me, it was 2 years ago. He stayed a year than went on a year mat leave with mom. They didn't pay to hold their spot so when they left it was like a normal withdrawal of care. They put him in preschool 4x a week but needed care for Mondays still. I have one pt child left so it worked out well. My deposit is one weeks of care so they're only paying a deposit of one day lol.

[mickyc]

I would write the receipt in the year you received it. That is what my accountant told me to do. My last pay of the year is on dec 24th, it covers the last week of dec and the first week of jan- I claim it in this year as I received it this year (and cashed it this year).

In all honesty I don't think it really matters. You claim your income and it all works out in the end. It's not like that one deposit is going to change your income by a significant amount.

[Busy ECE mommy]

My accountant told me to claim it in the year it was given/cashed.

[babydom]

I was told to claim in the yr it's used. So that's what I do

[kindertime]

There are 2 types of accounting (that I know of.) One where you claim amounts the year you receive it; and the other is when you earn it. I claim when I received it. Parents pay me in advance for 2 weeks at a time. So if payday is Dec. 30, but they are paying for Jan 2-13, I claim in the previous year. I can't speak to deposits, that's completely illegal here, but I would guess if they gave you a deposit in Sept. and keep their spot and they come to daycare in Jan., then claim it for Sept. and give them the 2015 tax receipt.

[playfelt]

I have always been told it is to be claimed in the year that it is received. It is your income and in your possession and as a cheque it is dated immediately and cashed so you have the income and should be claiming it that year regardless of when care starts.

[Crayola kiddies]

^^^^exactly^^^^^

[Suzie_Homemaker]

I disagree ... All money you receive in 2015 goes on your 2015 taxes and therefore you issue a receipt for that money .... It doesn't matter when you use the money

This is wrong.

On CRA website, is guide for self employed completing form T2125 - which we use for business incomes. In this it clearly say "■ report your income in the fiscal period you earn it,
regardless of when you receive the income;"

So if you take deposit this year, and it being applied to 2015 fees, you report in 2015.
If you take deposit this year, and it applied to FINAL week of care, then you not report until financial year that person leave.

http://www.cra-arc.gc.ca/E/pub/tg/t4002/t4002-14e.pdf

[Lee-Bee]

I have always been told it is to be claimed in the year that it is received. It is your income and in your possession and as a cheque it is dated immediately and cashed so you have the income and should be claiming it that year regardless of when care starts.

While you received the money, technically since it is a deposit for the last weeks of care it is supposed to be set aside until those last weeks of care...so despite being in your possession it is not yet your income.

[Suzie_Homemaker]

You can give receipt for deposit, and they can claim expense in year they paid it, but we not have to declare income until earn it. So if you apply deposit to first week care, that is the year you add into income. If you apply deposit, last week of care, then add it into income for year they leave. This might me many years away.

Some give me deposit in Nov 2014 for Sept 2015 start. She is 10 month old and start this week. She will not go school until Sept 2019 so if still here when age out, 2019 is when I declare as income because apply to final week care.

[5 Little Monkeys]

Thanks Suzie! I thought that is what I read. I've been doing it wrong, hopefully won't cause an issue!

So just to clarify, if payment is Dec 25 for 2 weeks, than we should be claiming only until the 31st and the remainder the following year?

[BlueRose]

According to my tax lady: If you receive a deposit and spend it right away then you claim it for the year you got it. If you put the deposit in a bank account and don't touch it until the client leaves then you claim it in the year then client leaves. I always add a note to my year end receipt stating the deposit will be added once its used. I have a separate bank account just for deposits.

[Suzie_Homemaker]

Thanks Suzie! I thought that is what I read. I've been doing it wrong, hopefully won't cause an issue!

So just to clarify, if payment is Dec 25 for 2 weeks, than we should be claiming only until the 31st and the remainder the following year?

Yes. This what I do.

My client pay bi-week in advance. Fees paid on Monday 28th Dec cover until Friday 8th Jan. Tax receipt for 2015 will include 28th-31st fee and rest apply to 2016 receipt.

[Suzie_Homemaker]

According to my tax lady: If you receive a deposit and spend it right away then you claim it for the year you got it. If you put the deposit in a bank account and don't touch it until the client leaves then you claim it in the year then client leaves. I always add a note to my year end receipt stating the deposit will be added once its used. I have a separate bank account just for deposits.

I make sure I comply with CRA rules. Tax lady is only human and can make mistake. Since it CRA who can audit, penalize, fine, it their guide I stick to and if person give advice conflict with CRA rule, I call CRA and double check.

CRA say clearly it declared year it earned, that what I stick to. Not worth risk if non CRA professional say different since CRA audit on their rules not tax lady belief.

[babydom]

I do what suzie does. Claim the deposit in the yr when it is used and claim money up to dec 31 the rest goes in the following yr

[5 Little Monkeys]

I'm going to have to change my bookkeeping a bit to keep better track of the deposit and the Dec/Jan payments but I'd rather do that than deal with stress if I get audited and know that they would find mistakes!

[Suzie_Homemaker]

I'm going to have to change my bookkeeping a bit to keep better track of the deposit and the Dec/Jan payments but I'd rather do that than deal with stress if I get audited and know that they would find mistakes!

I have big receipt book. Think it came from Staples. It has security receipt so make copy for me as I write receipt out. Has over 100 receipts in book so using same one I started with.

When I get deposit, I write "Non refundable - Deposit to hold place. Start Date no later than (put date). Applied to final week of care". I have little page marker sticker for pages with deposit receipt.

I use same book for year end receipt.

When someone leaving, they just pay difference of current fees and deposit paid for last week of care.

I then use book for my income at tax time. And if someone left, when I add deposit amount from book mark page to income, I remove book mar sticker. That way I know page with sticker still have income for declaring.

[Ottawaroses]

Thanks for all your responses. Turns out I may not have to worry after all about this family starting care in Jan. We had been e-mailing back and forth with them anxious about having an interview for a spot in my daycare for Jan. This is why I wanted some heads up information about deposits. They have not responded to my last e-mail so not sure what's up.

[5 Little Monkeys]

I have big receipt book. Think it came from Staples. It has security receipt so make copy for me as I write receipt out. Has over 100 receipts in book so using same one I started with.

When I get deposit, I write "Non refundable - Deposit to hold place. Start Date no later than (put date). Applied to final week of care". I have little page marker sticker for pages with deposit receipt.

I use same book for year end receipt.

When someone leaving, they just pay difference of current fees and deposit paid for last week of care.

I then use book for my income at tax time. And if someone left, when I add deposit amount from book mark page to income, I remove book mar sticker. That way I know page with sticker still have income for declaring.

Thanks!! I have the same book it sounds like. I have a really organized way of doing my receipts but at year end it all (receipts, payment sheets for the year) goes in my tax file and that big envelope bag goes out to the garage for storage. I will just make a note in their file about the deposit from now on and that way I'll know quickly when and how much they paid and if receipt was given without having to go I to the garage lol. As for the dec/jan payments, I will just split that payment on their payment sheet (right now I just mark it all as dec and than put into my tax file)

[BlueRose]

I make sure I comply with CRA rules. Tax lady is only human and can make mistake. Since it CRA who can audit, penalize, fine, it their guide I stick to and if person give advice conflict with CRA rule, I call CRA and double check.

CRA say clearly it declared year it earned, that what I stick to. Not worth risk if non CRA professional say different since CRA audit on their rules not tax lady belief.

My tax lady specializes in home daycare. She said that there is a difference between earning and receiving a deposit. The deposit if not used is not earned it is on hold. A deposit that sits in the bank until used is on hold and not earned until used. This is why it isn't to be claimed until it is used. But if you spend it on whatever as soon as you get it it is classified as earned and it is not on hold.

[Suzie_Homemaker]

My tax lady specializes in home daycare. She said that there is a difference between earning and receiving a deposit. The deposit if not used is not earned it is on hold. A deposit that sits in the bank until used is on hold and not earned until used. This is why it isn't to be claimed until it is used. But if you spend it on whatever as soon as you get it it is classified as earned and it is not on hold.

I understanding your view but CRA say "report your income in the fiscal period you earn it, regardless of when you receive the income;".

Although your tax lady who specializes in dayhome feel there difference, CRA is clear it want income reported when earned not when received, and not based on if you spent it or didn't.

If CRA audit me, they be using their tax rules, not your lady's, so I will continue go by CRA rules, to know that if audited, I done what should, not what someone else think I should. If your lady is mistaken, who pays for error if audited? You or her?

[kindertime]

I was thinking about this today... if this money is a deposit, a "holding fee," then isn't the "holding" of the space earning it? I understand that you may use this money to pay for the child's last days of daycare, (i.e. their last 2 weeks) but if you call it a "holding fee," it is a fee for holding the space.

The other thing you should know, the people who work for the CRA are not obligated to give you the correct information. Call them today with this question and Beatrice will give you one answer and tomorrow George will give you a different answer. They are interpretting the rules like everyone else.

The CBC story Feb, 2015

http://www.cbc.ca/news/politics/revenue-canada-s-call-centres-giving-bad-tax-advice-report-1.2946998

[Lee-Bee]

I was thinking about this today... if this money is a deposit, a "holding fee," then isn't the "holding" of the space earning it? I understand that you may use this money to pay for the child's last days of daycare, (i.e. their last 2 weeks) but if you call it a "holding fee," it is a fee for holding the space.

The other thing you should know, the people who work for the CRA are not obligated to give you the correct information. Call them today with this question and Beatrice will give you one answer and tomorrow George will give you a different answer. They are interpretting the rules like everyone else.

The CBC story Feb, 2015

http://www.cbc.ca/news/politics/revenue-canada-s-call-centres-giving-bad-tax-advice-report-1.2946998

To me a 'holding fee' is a fee that is paid to hold a spot for a few months. It would be income in lieu of holding a spot empty until they need it. It is different then a deposit that is meant to be used for last weeks of care. The deposit is security that the family will not bail on you without paying you money owed (even if it is just the money owed for the notice period). The holding fee would be current income the deposit would be income for a later (usually unspecified) date.