Home›Childcare›How cost-based funding works
CWELCC guide · 2026
How CWELCC cost-based funding actually works.
The number in your funding announcement is not a grant you get to keep. It is a ceiling, built from provincial benchmarks, reduced by the fees you are expected to collect, and settled after year-end against what you actually spent. Understanding which of those four moving parts you control is most of what separates a clean reconciliation from a recovery.
The formula
Four parts, one number.
Your allocation for the calendar year is the program cost allocation, plus an amount in lieu of profit or surplus, minus the base fee revenue you are expected to collect. One-time Emergency Funding sits outside that and is approved case by case.
1. Program cost allocation
This is the benchmark allocation — the province's standardised estimate of what it costs to run your centre, adjusted for your service manager's geography — plus any top-up you qualify for. The benchmarks are built in four components: program staffing, supervisor, accommodations (rent or mortgage, property taxes, maintenance, minor repairs, furniture and equipment), and operations (non-program staff such as cooks, food, utilities, insurance, cleaning, office costs, program supplies, licensing and professional fees).
Top-ups exist because standardised benchmarks do not fit every centre. A legacy top-up recognises a higher pre-existing cost structure; a growth top-up supports approved new spaces. Both are deliberately temporary in design: the province's stated goal is to shift costs gradually toward the benchmark.
2. Amount in lieu of profit or surplus
This is the part operators most often miss. It is calculated, not negotiated, and in the 2026 provincial guideline it is the sum of three pieces: 4.25% of the program cost allocation, plus 3.5% of the benchmark allocation, plus a flat $6,000 for the year, prorated by the months the centre was enrolled. A commercial operator can use it however they choose; a non-profit reinvests it according to its by-laws.
It is also recalculated at reconciliation if your actual program costs come in below your allocation — so underspending shrinks this amount too, not just the cost funding.
3. Base fee revenue offset
Parent fees are assumed to pay for part of the service, so they are subtracted. The estimate uses the same spaces and service days as the benchmark, then multiplies by an allowed vacancy factor — 0.95 for 2026, meaning the province assumes 5% of your spaces sit empty. Mandatory fees of any kind count in this figure. Donations, genuine fundraising and interest income do not.
4. One-time Emergency Funding
OTEF covers unexpected, non-discretionary, one-time costs, subject to approval and budget availability. In Peel it carries its own application, documentation and cost-sharing rules, and unused amounts are recovered.
The allocation is a ceiling
Actual eligible costs claimed at reconciliation cannot exceed the program cost allocation, however much you actually spent. If your real costs run over, you cover the difference.
It works the other way too: spend less than the allocation and the unspent part is recovered, and the in-lieu-of-profit amount is recalculated downward with it.
Flexible across categories, not across sites
Once the funding conditions are met, money can move between benchmark categories — you are not capped at the supervisor line to pay a supervisor. In Peel, from 2026, funding cannot move between sites: each site is allocated and reconciled on its own.
Where the money goes
What each part is for, and what you control.
| Part of the calculation | How it is set | What the operator controls |
|---|---|---|
| Benchmark allocation | Provincial benchmarks by component, adjusted for your area, applied to planned operating spaces and service days | Almost nothing directly — but operating spaces and service days feed it, so enrolment and closure decisions matter |
| Top-up (legacy or growth) | Your own historical cost structure, or approved new spaces | Accuracy of the cost data submitted, and whether high costs can be justified at a cost review |
| Amount in lieu of profit or surplus | 4.25% of the program cost allocation + 3.5% of the benchmark allocation + $6,000 a year, prorated | Indirectly: it shrinks if actual costs come in under the allocation |
| Base fee revenue offset | Expected base fee revenue × 0.95 for 2026 | A great deal — every mandatory fee you charge increases it and reduces your funding |
| Actual program costs | What you spent, tested against attributable, appropriate and reasonable | All of it, and this is where reconciliation is won or lost |
The base fee row is worth sitting with. Because the offset is what you are expected to collect, collecting more than expected does not leave you better off — the extra revenue simply reduces the funding you need, and it cannot be used to cover costs above your program cost allocation. Collect less than expected and the expected figure is still used, except in extenuating circumstances, which is the situation a high-vacancy centre needs to raise with its Early Years Specialist early rather than at reconciliation.
Cost reviews
Why a high top-up attracts attention.
The province directs service managers to review the costs of centres whose top-up is disproportionately large relative to their benchmark allocation. The selection is mechanical: divide the top-up by the benchmark allocation, and centres above the service manager's growth multiplier for the year are eligible for review. Each year the service manager selects the top 10% of existing centres by that ratio, engages them by March 31, and completes the reviews by December 31. A centre is only ever selected once, as long as it keeps working on the agreed cost reductions.
A cost review is not an audit and is not designed to cut quality. It looks for costs that are actually ineligible, and for costs that could be incurred more efficiently. The guideline explicitly accepts that sometimes nothing can be reduced — a long-term lease, a limited food supply for dietary requirements, language staffing where labour supply is short, or a value proposition genuinely included in the base fee such as music or swimming.
The three tests every cost has to pass
- Attributable: related, directly or indirectly, to delivering child care to CWELCC-eligible children and included in the base fee.
- Appropriate: necessary and practical for the program, including for health and safety or cultural and religious needs.
- Reasonable: the amount or quality matches the need and sits at fair market value. A cost can be partly eligible — the unreasonable portion is trimmed rather than the whole cost being refused.
Two specific rules catch people out. Transactions with family, friends or related companies are eligible only at or below fair market value, and in Peel you need at least two quotes obtained before the purchase. And costs of caring for children aged six to twelve have to be split out on a reasonable, documented methodology, because those children are not CWELCC-eligible.
Ineligible, whatever the principles say
Amounts in lieu of profit for the controlling owner — dividends, bonuses, perks, in-kind benefits. Costs funded by another public source or reimbursed by insurance. Major capital repairs unless approved. Costs for children aged six to twelve. Interest above Canada Small Business Financing Program rates. Penalties and fines. Corporate and personal income tax. Loan principal. Vehicle costs, with a narrow exception. Amortisation on assets bought after August 15, 2024. Donations and fundraising expenses. Professional body membership fees paid for staff, including the College of Early Childhood Educators.
Quick answers
What operators ask us.
What is CWELCC cost-based funding?
It is the funding model that replaced per-space grants. Your service manager calculates a program cost allocation from provincial benchmarks plus any top-up, adds an amount in lieu of profit or surplus, and subtracts the base fee revenue you are expected to collect. Advances are paid through the year, and the final amount is settled at reconciliation against your actual eligible costs.
How is the amount in lieu of profit calculated?
Under the 2026 provincial guideline it is 4.25% of the program cost allocation, plus 3.5% of the benchmark allocation, plus a flat $6,000 for the year prorated by the months enrolled. It is recalculated at reconciliation if actual program costs come in below the allocation.
What happens if I spend less than my allocation?
The unspent portion is recovered, and because the in-lieu-of-profit amount is a function of your costs, it is recalculated downward as well. Underspending can also affect future top-up allocations. Spending the allocation on genuinely eligible costs during the year is the whole discipline.
Does collecting more parent fees than expected help?
No. The base fee revenue offset at reconciliation is the greater of what you actually earned and what was expected, so extra revenue reduces your funding rather than adding to it, and it cannot be used to fund costs above your program cost allocation.
Can I move CWELCC funding between my centres?
In Peel, no — from 2026 funding is issued and reconciled site by site and cannot move between sites. Within a site you can move between benchmark categories once the funding conditions are met. Other service managers set their own rules, so check your own guideline.
Why was my centre selected for a cost review?
Because your top-up divided by your benchmark allocation exceeded your service manager's growth multiplier, and you fell in the top 10% by that ratio. Selection happens by March 31 and the review is finished by December 31. It looks for ineligible costs and for efficiencies, and a centre is only selected once while it keeps working on the agreed actions.
Sources: Ontario Ministry of Education, Chapter 2 Division 2: CWELCC Cost-Based Funding Guideline (July 2026); Region of Peel, 2026 CWELCC funding guideline, centre-based (sections 3, 10 and 12). Rules differ by service manager — in Peel, Halton and Toronto the provincial formula is the same but administration is not. General information, not advice for your situation.
Not sure your allocation is being spent where it counts?
Call 647-870-8498 or email info@ghayurtax.com. We keep the books for licensed centres and agencies in Peel, Halton and Toronto, and we track the allocation against eligible costs through the year rather than in March.