This is a hot topic not only in Canada but in many countries as caregivers are often hired illegally. The fines and penalties can be extremely onerous if you don't comply with the rules. Nannies and caregivers are regulated by province under domestic. Many additional rules apply to foreign live-in nannies (aka caregivers when it's an adult or senior)
Provincial labour call centre agents, the HRSDC foreign worker agents, and the Service Canada Job Posting call centre agents quickly become your best friends when you hire a nanny or caregiver. It's usually necessary to check with them as the rules keep changing.
When hiring domestics, employment standards rules about wages, hours of work, statutory holidays and vacation pay as well as other leaves to name a few rules plus payroll and worker's compensation are all extremely important to protect you, the employer from a claim where the lawyers from the various gov't agencies all work for the nanny/caregiver for free, while your legal costs and accounting for payroll can mount up. Domestics are usually employees, they are not self-employed unless they work for an agency which then has the responsibility for payroll and worker's compensation.
If you aren't comfortable with all the rules, hire a payroll service company to assist you. It can save you in the long run. There are many, like ADP or Ceridian, or check with your local bank or credit union to see what payroll services they offer for a fee.
Add the cost of employer CPP, EI premiums as well as worker's compensation costs to your medical expenses or child care costs should the caregiver expense quality for a claim under Child Care Expenses, (up to $10,000 for a child with a disability, and that may be an adult child) Disability Supports, or Medical Expenses, either Line 330 or Line 331 on your personal tax return.
If you aren't clear on those rules, your best bet is to spend some time reading the links on my Families Tax Info page found on the Free Tax Information page. Pay particular attention to RC4064 Medical and Disability Related Information guide, which lists over 150 medical expenses, and has several pages with examples devoted just to caregiver costs.
If someone were to make an offer to purchase the rights to TaxDetective (Trademarked in Canada), I'm open to offers.
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