Home›Childcare›HST and the rebate
Child care guide · autumn 2026
You cannot claim input tax credits. You may still be able to claim the HST.
Child care is an exempt supply, so a centre charges no HST on fees and gets no input tax credits on its purchases. Operators stop there, and for a for-profit centre that is the end of it. A non-profit centre is in a different position: if its government funding reaches 40% on the test the regulations actually set — which is not the test most people assume — it is a qualifying non-profit organization and can claim back roughly 70% of the HST it pays, through the public service bodies' rebate. One claim period from 2022 closes on December 31, 2026.
Why there is nothing to credit
The exemption is the problem, not the benefit.
Section 1 of Part IV of Schedule V to the Excise Tax Act exempts a supply of child care services whose primary purpose is to provide care and supervision to children 14 years of age or under, for periods normally less than 24 hours a day. The CRA's own guidance on that provision makes three points worth knowing: the Act does not define "child care services", so the ordinary meaning applies; the exemption does not depend on who supplies the service, so a licensed centre and an unlicensed home provider are treated the same way; and it is decided supply by supply, so in a mixed-age group the position can differ from one child to the next.
Exempt is not the same as zero-rated. A zero-rated supplier charges tax at 0% and still recovers everything it paid. An exempt supplier is outside the system: no tax on the way out, and no input tax credits on the way in. The 13% on your rent, utilities, cleaning contract, playground repair, audit fee and bookkeeping is a real cost that sits in your operating budget and never comes back as a credit.
Instruction is the usual edge case. The CRA treats a programme of instruction in an athletic, recreational or educational activity as something other than child care, even where supervision is part of it — tennis lessons, hockey school, tutoring. For a mixed programme it looks at the predominant element, weighing the children's ages, the qualifications of the people running it, whether progress is measured against goals, and how much of the time goes to the programme. A before-and-after school programme that is care and supervision is exempt child care; a structured coaching programme sold separately may not be.
The short version
A for-profit centre recovers nothing: HST is a cost. A non-profit centre that meets the 40% government funding test recovers 50% of the federal part and 82% of the Ontario part — about 9 cents on every pre-tax dollar of taxable purchases. A registered charity recovers at the same rates with no funding test at all.
The number
About 9% of what you spend, or about 70% of the tax.
The public service bodies' rebate in section 259 of the Excise Tax Act pays a fixed percentage of the "non-creditable tax charged" — the GST/HST you paid and could not claim as an input tax credit. Ontario's 13% HST is two taxes stacked: a 5% federal part and an 8% provincial part. The percentages are different for each, and different again by the kind of body claiming.
| Who is claiming | Federal part (5%) | Ontario part (8%) | Recovered on a $100 purchase |
|---|---|---|---|
| Qualifying non-profit organization — a non-profit centre that meets the 40% test | 50% | 82% | $9.06 of the $13.00 |
| Registered charity — no funding test | 50% | 82% | $9.06 of the $13.00 |
| School authority, where a board runs the programme | 68% | 93% | $10.84 of the $13.00 |
| Municipality, where the service manager runs the centre directly | 100% | 78% | $11.24 of the $13.00 |
| Non-profit centre that does not meet the 40% test | Nil | Nil | Nothing |
| For-profit centre, incorporated or otherwise | Nil | Nil | Nothing |
So for a qualifying non-profit centre the arithmetic is: 50% of 5% plus 82% of 8% equals 9.06% of the pre-tax price of anything you buy that carries HST, which is about 70% of the tax itself. A centre with $250,000 a year of taxable purchases pays $32,500 of HST and gets $22,650 of it back. The $9,850 left behind is the part the rebate does not reach.
One point that saves a great deal of work. A charity or a qualifying non-profit organization that is not a selected public service body claims under subsection 259(3) on all of its non-creditable tax for the claim period. There is no exercise of apportioning purchases between activities — which is just as well, since for a child care centre every activity is on the exempt side. The claim is a total of tax paid, not a percentage of a percentage.
The test
"40% of total revenue" is not the fraction you would guess.
Subsection 259(2) says a non-profit organization is a qualifying non-profit organization at a time in a fiscal year if its percentage of government funding for the year is at least 40%. "Non-profit organization" has its own meaning in subsection 123(1): a person other than an individual, trust, charity, public institution, municipality or government, organised and operated solely for a purpose other than profit, with no part of its income payable to or available for the personal benefit of a proprietor, member or shareholder. A non-share corporation running a licensed centre fits. A share corporation paying dividends does not, whatever its margins look like.
The percentage itself comes from section 3 of the Public Service Body Rebate (GST/HST) Regulations, and it is not government funding over total revenue. It is
A ÷ (A + B + C − D) × 100
where A is the government funding identified as such in your annual financial statements for the year — net of funding you repaid in the year, and of funding that became receivable before the year began and was still unpaid at the end of it — B is monetary gifts plus the consideration for the supplies you made — your parent fees — C is interest, dividends, capital contributions and certain non-arm's-length loans, and D includes 25% of B. Parent fee revenue is therefore discounted by a quarter before it goes into the denominator, which makes the test materially easier to pass than the plain-English version of it suggests. And the percentage is the greater of the current year's result and the result for the two immediately preceding fiscal years together, so one strong fee year does not cost you the status. A centre in its first fiscal year takes zero on that alternative and in its second takes the first year's result, so a new centre is effectively tested on the year in front of it.
Two things decide whether service manager money counts. First, the payer has to be a "grantor", which includes a municipality — in Peel, Halton and Toronto the service manager is a regional municipality or a city, so that is satisfied. Second, the money has to fall within the definition of government funding, which has two limbs: an amount paid to assist you in carrying out your purposes and not as consideration for your supplies, or an amount paid as consideration for making property or services available to other people where your supplies to those people are exempt. CWELCC cost-based funding, the base fee reduction and fee subsidy land in one limb or the other on any reading, because child care is exempt either way. Where funding reaches you through an intermediary rather than from the service manager itself, the regulation requires that intermediary to have given you a certificate in the Minister's prescribed form, confirming the amount is government funding, at the time the amount was paid. That is not something you can produce retrospectively, so on a back claim it is a real risk rather than a formality.
The phrase doing quiet work is "identified in the annual financial statements of the particular person for the year as government funding". The test is proved from the statements, so how the funding is presented in them is not a cosmetic question. Statements that bury transfer payments inside a single "revenue" line make a claim harder to support than statements that name them.
A centre that looks like it fails
Government funding $350,000; parent base fees $600,000; no gifts, no investment income.
The guess: 350,000 ÷ 950,000 = 36.8%. Fails.
The regulation: D is 25% of the $600,000, so the denominator is 350,000 + 600,000 − 150,000 = $800,000. 350,000 ÷ 800,000 = 43.8%. Qualifies.
The gap between those two numbers is the whole claim.
When status is tested
Subsection 259(3) asks whether you were a qualifying non-profit organization on the last day of the claim period or of the fiscal year containing it. For a December year-end that means December 31 settles both of the year's claim periods at once.
The claim
What in a centre's budget actually carries recoverable tax.
Most of a centre's spending is payroll, and payroll carries no HST at all. The rebate is worth what it is worth because of the rest.
| Cost | HST position | What to claim |
|---|---|---|
| Wages, salaries, WEG and workforce compensation top-ups, employer payroll remittances | Not a supply — no HST | Nothing — and it is the largest part of a centre's budget |
| Rent on commercial premises, utilities, telephone and internet, cleaning, security monitoring | Taxable at 13% | Full claim. The largest single block in practice |
| Accounting, bookkeeping, payroll, legal and audit fees | Taxable at 13% | Full claim — including the audit the service manager requires |
| Toys, craft supplies, furniture, playground equipment, repairs and maintenance | Taxable at 13% | Full claim |
| Basic groceries — milk, bread, produce, most unprepared food | Zero-rated | Nothing, because no tax was charged |
| Catered meals, prepared food, snack foods, beverages | Taxable at 13%, unless a qualifying prepared food order totals $4 or less, where Ontario rebates the 8% at the till | Claim the 13% where charged; where the point-of-sale rebate applied, claim only the federal 5% |
| Diapers, children's clothing and footwear, car seats and booster seats, printed books | Ontario rebates the 8% provincial part at the point of sale | Claim the federal 5% only, and keep these purchases out of the provincial-part claim |
| Insurance premiums, municipal property taxes billed to you directly, loan interest and most bank charges | Exempt, or not consideration for a supply — no HST | Nothing on the direct bill. But realty taxes and operating costs recovered from you as additional rent under a commercial lease form part of the taxable rent, and that HST is claimable |
| Anything bought exclusively for the personal benefit of an officer, employee or member | Taxable, but a prescribed exclusion from the rebate | Nothing, unless you on-supply it at fair market value with tax, or it creates no taxable benefit |
The short list of purchases the regulation excludes outright is otherwise unlikely to touch a centre: property and services for making exempt long-term residential rentals, certain excisable goods bought for resale, memberships in clubs whose main purpose is dining, recreational or sporting facilities, and purchases made exclusively for the personal benefit of an officer, employee or member. That last exclusion has two carve-outs — where you on-supply the item for its fair market value with tax payable, or where it would create no taxable benefit under section 6 of the Income Tax Act.
Mechanics
Two claims a year, four years back, one application each.
You do not have to be registered for GST/HST to claim. For a centre that is not a registrant — the normal case, since there is no commercial activity to register for — the claim period is either the first and second fiscal quarters of the year or the third and fourth. That is two claims a year and no more: for a December year-end, January to June and July to December.
The application is Form GST66, plus Form RC7066-SCH for the provincial part, which is where most of the money is, so it is not optional in any practical sense. A non-profit organization also has to file Form GST523-1, Non-profit Organizations – Government Funding, for each fiscal year it wants to claim for. That is the form the 40% calculation goes on, and it is the reason the financial statements and the funding presentation matter.
Two limits work differently and get confused with each other:
- Four years to make the claim at all. Subsection 259(5) requires a non-registrant's application to be filed within four years after the last day of the claim period; for a registrant, within four years after the return for that period was due.
- One application per claim period under subsection 259(6). You cannot file a second application to top up a period you have already claimed. What you can do, under subsection 259(6.1), is pick a missed item up on a later period's application — within two years and three months of the end of the original claim period for a non-registrant, and conditional on your claimant type and rates not having changed in between.
Which means a centre that has never claimed is working against a specific date. For a December 31 year-end, the July to December 2022 claim period expires on December 31, 2026. The January to June 2022 period closed on June 30 this year and is gone. A centre starting now can still claim eight half-year periods — the second half of 2022 through the first half of 2026 — but the oldest of them goes on December 31.
What four years is worth
Eight half-year periods is four years. At $22,650 a year on $250,000 of annual taxable purchases, that is roughly $90,600. Scale it to your own non-payroll spending: the rebate is 9.06% of it.
No part of that is a reason to rush a claim you cannot support. Each period needs the invoices behind it and a 40% calculation that holds.
Do you need to register?
Only if you make taxable supplies above the small supplier threshold — and for a public service body that threshold is $50,000 under subsection 148(1), not the $30,000 that applies to a business. Renting the hall to an outside group for a day or an evening is taxable; so is a separately sold instructional programme. A charge that is genuinely part of the child care service, such as a late pick-up fee, is part of the exempt supply — but an optional extra billed separately may not be, and the CRA treats an optional, separately charged catered lunch inside a child care programme as its own taxable supply. Most centres stay well under $50,000 and claim as non-registrants.
The part nobody writes down
How a rebate lands in the CWELCC reconciliation.
The provincial rule is clear enough. Rule 3 of the specific rules for assessing eligible costs, in Chapter 2 Division 2 of the Ministry's funding guideline, excludes "costs funded by another public source or reimbursed by another source (such as by insurance claims)". Peel repeats it as item 2 of its ineligible list; Halton repeats it as item (d) of its own. None of those three documents mentions HST or a tax rebate — but one service manager does name it, in a place worth knowing about.
Halton's 2026 guidelines, in the minor capital expenses table, put "minor capital expenses funded through other sources (e.g. insurance claim, another public funding source, tax rebates or credits)" on the ineligible side. That is the only express statement by an Ontario service manager we have found on the point, it is in the minor capital context rather than a general rule, and it lands where the structure of the thing already pointed: a recoverable tax is not a cost you incurred.
The accounting says the same without being asked. Once a rebate is claimable, the recoverable share of the tax is a receivable rather than an expense, so your financial statements show the net cost of the item. The FAIR and the reconciliation are built from those statements, so your eligible costs fall by the amount of the rebate whether or not anyone thinks about it. The distinction to hold on to is that a rebate is not revenue: the Ministry guideline says for greater certainty that other revenue beyond base fees, such as donations or non-base fees, "does not impact cost eligibility or otherwise offset cost-based funding". A rebate is caught by Rule 3 on the cost side, not by that rule on the revenue side.
Then the consequence, which depends entirely on where you sit against your allocation.
- If your eligible costs comfortably exceed your program cost allocation — the common position — the allocation is a ceiling and reducing costs below it changes nothing. The rebate is cash in hand and the reconciliation is unaffected.
- If your eligible costs sit below your allocation and you are already facing a recovery, lower costs mean a larger recovery. The rebate arrives from the CRA and a similar amount goes back to the service manager. In Peel there are two further effects in that position: the Region recalculates your amount in lieu of profit or surplus on your actual program costs, and lower actual costs may affect future top-up allocations. So a four-year catch-up claim landing in one reconciliation year is worth modelling before it is filed, not after.
None of that is a reason not to claim. The rebate is a statutory entitlement and a centre is not better off leaving it with the CRA. It is a reason to know which of the two positions you are in before the claim goes in, and — in Peel, where the guideline does not name tax at all — to put the treatment in writing to your Early Years Specialist rather than discover a disagreement at reconciliation. Toronto's funding guidelines are silent on it too.
One thing the rebate does not do is disturb the other two numbers. It is not base fee revenue, so the expected-versus-actual base fee comparison is untouched. And it is not government funding for the 40% test: the definition of government funding expressly excludes a refund, rebate or remission of taxes, and a rebate is neither a monetary gift nor consideration for a supply, so it sits outside that formula altogether.
Quick answers
What operators ask us.
Do we charge HST on child care fees?
No. A supply of child care services whose primary purpose is care and supervision of children 14 or under, for periods normally less than 24 hours a day, is exempt under section 1 of Part IV of Schedule V to the Excise Tax Act. That is true whether or not the centre is licensed. The consequence is that you also get no input tax credits, which is why the public service bodies' rebate matters to a non-profit centre.
We are a non-profit but not a registered charity. Can we still claim?
Yes, if you meet the 40% government funding test for the fiscal year. A registered charity claims at the same rates — 50% of the federal part and 82% of the Ontario part — with no funding test. A non-profit without charitable registration has to run the calculation in section 3 of the Public Service Body Rebate (GST/HST) Regulations each year and file Form GST523-1 for the year.
Our CWELCC funding is about 35% of revenue. Is that the end of it?
Not necessarily, for two reasons. The denominator in the regulation is not total revenue: 25% of your fee and gift revenue comes back out of it, which lifts the percentage. And the test takes the greater of the current year's percentage and the percentage for the two immediately preceding fiscal years combined, so a year with unusually high fee revenue does not by itself end the claim. Run the formula before concluding you fail it.
Does fee subsidy count as government funding?
On the face of the regulation, yes. Government funding includes an amount paid by a grantor as consideration for making property or services available to other people where the supplies you make to those people are exempt. Fee subsidy paid by a service manager so that child care is available to a family fits that limb, and child care is exempt. A service manager in Peel, Halton or Toronto is a municipality, which is a grantor.
We are a for-profit centre. Is there anything here for us?
Not on the rebate. The public service bodies' rebate is only for charities, qualifying non-profit organizations and the listed public bodies, and a share corporation that can distribute income to its shareholders is none of those. HST on your purchases is a cost of operating, and it sits in your eligible CWELCC costs at the gross amount because none of it is recoverable.
How far back can we go if we have never claimed?
Four years from the last day of each claim period, for a non-registrant. On a December 31 year-end that means the July to December 2022 period is claimable until December 31, 2026, and the January to June 2022 period expired on June 30, 2026. Each period needs its own application, and you can only file one application per period, so the supporting records have to be complete before you file rather than topped up afterwards.
Will claiming it increase our CWELCC recovery?
It can, if your eligible costs are already below your program cost allocation, because the recoverable part of the tax is not a cost and your eligible costs fall by that amount. If your costs exceed the allocation — the usual position — the allocation is a ceiling and the reconciliation does not move. The Ministry and Peel guidelines exclude costs reimbursed by another source without naming tax; Halton's guidelines name tax rebates expressly, in the minor capital table. Confirm the treatment with your own service manager before filing several years at once.
Can our bookkeeper just add it to the HST return?
Only if you are a registrant, in which case the rebate can go on line 111 of the return for the same reporting period. A centre that is not registered files Form GST66 and Form RC7066-SCH on their own, twice a year, with Form GST523-1 for the fiscal year. There is no HST return to attach it to, which is one reason the rebate goes unclaimed for years at a time.
Sources: Excise Tax Act, s. 259 — the public service bodies' rebate, the definitions of claim period and specified percentage, the 40% qualifying non-profit organization test in s. 259(2), the rebate in s. 259(3), the four-year limit in s. 259(5), the one-application rule in s. 259(6) and the carry-forward in s. 259(6.1); Excise Tax Act, s. 123(1) — the definition of non-profit organization; Excise Tax Act, s. 148(1) — the $50,000 small supplier threshold for a public service body; Public Service Body Rebate (GST/HST) Regulations, SOR/91-37 — s. 2 (government funding, grantor), s. 3 (the percentage formula, including 25% of B in the description of D, and the two-preceding-years alternative), s. 4 (prescribed exclusions) and s. 5 (Ontario 82%); CRA, GST/HST Memorandum 21-1: Child Care Services — the scope of the exemption, the age and 24-hour conditions, and instruction versus care; CRA, GST/HST public service bodies' rebate — the rebate factors by claimant, Form GST66, Form RC7066-SCH, Form GST523-1 for each fiscal year, and the filing and carry-forward deadlines; ontario.ca, HST: Ontario point-of-sale rebates — diapers, children's clothing and footwear, car seats, books, newspapers and qualifying prepared food of $4 or less; Region of Peel, 2026 CWELCC funding guideline, centre-based — sections 10.1 and 10.2, the cost principles and the ineligible cost list; Ontario Ministry of Education, Chapter 2 Division 2: CWELCC Cost-Based Funding Guideline (July 2026) — the benchmark allocation and Rule 3 of the specific rules for assessing eligible costs; Halton Region, CWELCC guidelines for child care operators (April 2026) — the eligible cost list and the minor capital expenses table. The Ministry and Peel guidelines state the rule on costs reimbursed by another source without naming tax; only Halton's guidelines name tax rebates, and then in the minor capital context. Whether a particular organisation is a non-profit organization and meets the 40% test turns on its own constitution and financial statements. General information, not advice for your situation.
Never claimed it?
Call 647-870-8498 or email info@ghayurtax.com. We keep the books for licensed centres and home child care agencies in Peel, Halton and Toronto, run the 40% calculation off the statements we prepare, and file the back claim periods that are still open — before the December 31 cut-off takes one of them away.