How to Start a Daycare Business in Ontario
The complete step-by-step guide to starting a licensed daycare or childcare centre in Ontario. Covers incorporation, CCEYA licensing, staff-to-child ratios, municipal zoning, public health inspection, insurance, the childcare HST exemption, CWELCC subsidy and daycare-specific tax planning. Written by a licensed Ontario CPA.
Step 1: Incorporate Your Daycare Business
The first step for any new daycare operator in Ontario is choosing a business structure. Incorporation is strongly recommended for licensed childcare centres because of the liability exposure inherent in caring for children. A single injury claim, allergic reaction incident or allegation of negligence can generate a six-figure legal claim. A corporation creates a separate legal entity that protects your personal assets from these risks.
Beyond liability protection, incorporation provides a significant tax advantage. A CCPC pays 12.2% combined tax on the first $500,000 of active business income under the Small Business Deduction, compared to personal rates of 29% to 53.53% in Ontario. If your daycare generates $120,000 in net income and you leave $50,000 in the corporation, you defer approximately $7,665 in tax per year. Over five years, that is $38,325 working inside your business.
Incorporation is also required by many commercial landlords before signing a lease for childcare space, and by insurance underwriters before issuing commercial general liability policies for childcare operations.
| Factor | Sole Proprietorship | Corporation (CCPC) |
|---|---|---|
| Liability protection | None. Personal assets at risk from injury claims, negligence allegations and lease defaults. | Separate legal entity. Personal assets protected (director liability for unremitted payroll and HST still applies). |
| Tax rate on net income | 20% to 53.53% Ontario personal rates | 12.2% on first $500,000 active business income |
| Tax deferral at $120,000 net income | $0 | $7,665 per year |
| CWELCC subsidy eligibility | Eligible | Eligible. Most CWELCC-enrolled centres are incorporated. |
| Commercial lease requirement | Many landlords refuse sole props for childcare space | Required by most commercial landlords and institutional property managers |
| LCGE on future sale | Not available | Up to $1,016,836 per shareholder on qualifying CCPC shares |
| Incorporation cost through Gondaliya CPA | N/A | $35 federal or $335 Ontario (all-inclusive) |
Incorporate Your Daycare for $35
Federal incorporation includes government fee, NUANS, Articles, minute book and CRA registration.
Step 2: Obtain a Ministry of Education Childcare Licence (CCEYA)
Every childcare centre in Ontario caring for more than 5 children must be licensed under the Child Care and Early Years Act, 2014 (CCEYA). The licence is issued by the Ontario Ministry of Education and is non-negotiable. Operating an unlicensed daycare with more than 5 children is a provincial offence with fines up to $250,000 for a corporation and $50,000 for an individual, plus potential imprisonment.
| Licensing Requirement | Details | Timeline |
|---|---|---|
| CCEYA licence application | Submit application to the Ministry of Education regional office. Includes operator information, program statement, staffing plan, floor plans and financial viability assessment. | 3 to 12 months from application to licence issuance |
| Program statement and policy manual | Written policies covering program philosophy (aligned with How Does Learning Happen?), behaviour guidance, health and safety, nutrition, sleep supervision, emergency procedures, parent communication and inclusion. | Must be complete before application |
| Criminal reference check with vulnerable sector screening | Required for every operator, director, supervisor, staff member and volunteer who has direct contact with children. | 4 to 8 weeks for processing |
| Standard First Aid and CPR-C certification | At least one staff member with current certification on-site at all times. Most centres require all staff to be certified. | 1 to 2 day course |
| Health assessment and immunization records | All staff must provide a health assessment. Children must have up-to-date immunization records (or a valid exemption) on file. | Ongoing requirement |
| Ministry licensing inspection | Ministry inspector visits the facility before licence issuance and conducts annual inspections thereafter. Unannounced inspections can occur at any time. | Scheduled before licence issuance, then annually |
Unlicensed Daycare Is a Provincial Offence: Operating a childcare program for more than 5 unrelated children without a CCEYA licence is illegal in Ontario. Fines are up to $250,000 for a corporation and $50,000 for an individual per offence, with additional daily penalties for continued non-compliance. The Ministry of Education actively investigates unlicensed operations based on complaints and referrals. If you are caring for more than 5 children in a home or commercial setting, you must be licensed.
Step 3: Understand Staff-to-Child Ratios and Group Sizes
Ontario's CCEYA prescribes mandatory staff-to-child ratios and maximum group sizes by age. These ratios are not negotiable and are verified during every Ministry inspection. Falling below ratio at any point during operating hours is a licensing violation.
| Age Group | Staff-to-Child Ratio | Maximum Group Size |
|---|---|---|
| Infants (birth to 18 months) | 1 staff : 3 children | 10 |
| Toddlers (18 months to 2.5 years) | 1 staff : 5 children | 15 |
| Preschool (2.5 years to 3.8 years) | 1 staff : 8 children | 24 |
| Kindergarten (3.8 years to 5 years) | 1 staff : 13 children | 26 |
| School-age (6 to 12 years) | 1 staff : 15 children | 30 |
Staffing Is Your Largest Operating Cost: In a licensed Ontario daycare, staff wages and benefits typically represent 70% to 80% of total operating expenses. A 50-child centre with infants, toddlers and preschoolers requires a minimum of 8 to 10 staff to maintain ratios throughout the day (including coverage for breaks, sick days and statutory holidays). Budget for staffing first, then build your fee schedule around the staffing cost. Understaffing to save money results in ratio violations, licensing conditions and potential licence revocation.
Step 4: Secure a Facility and Confirm Zoning
| Requirement | Details | Where to Apply |
|---|---|---|
| Municipal zoning confirmation | Confirm the property is zoned for childcare use (institutional, commercial or mixed-use depending on municipality). Some residential zones permit home-based childcare with conditions. | Municipal planning department |
| Building permit (if renovating) | Childcare renovations require permits. Building code requires specific features: two exits per room, accessible washrooms, minimum ceiling height, natural light requirements, outdoor play space. | Municipal building department |
| Fire safety plan and inspection | Fire department inspection required before licence issuance. Fire extinguishers, smoke detectors, carbon monoxide detectors, emergency lighting and posted evacuation routes mandatory. | Local fire department |
| Public health unit inspection | Local public health unit inspects the facility for food handling (if providing meals/snacks), sanitation, diaper changing procedures, handwashing stations and general hygiene. | Local public health unit |
| Outdoor play space | CCEYA requires outdoor play space of 5.6 square metres per child. Must be fenced, age-appropriate and inspected by the licensing inspector. | Verified during Ministry inspection |
| Indoor space requirements | Minimum 2.8 square metres of unobstructed play space per child indoors (not including hallways, washrooms, kitchens or storage). | Verified during Ministry inspection |
Space Drives Capacity, Capacity Drives Revenue: Your maximum licensed capacity is limited by the smaller of your indoor space (2.8 sq m per child) or outdoor space (5.6 sq m per child). A 2,000 sq ft facility with 1,400 sq ft of usable play space supports approximately 46 children indoors (130 sq m / 2.8). If outdoor space only accommodates 30 children, your licensed capacity is 30. Every child above capacity is a licensing violation. Calculate capacity before signing the lease.
Step 5: Register with CRA and Understand the Childcare HST Exemption
| Transaction | HST Status | Key Rule |
|---|---|---|
| Childcare fees (licensed daycare) | Exempt | Licensed childcare services are exempt from GST/HST under Schedule V, Part IV of the Excise Tax Act. You do NOT charge HST on childcare fees. |
| Before and after school care (licensed) | Exempt | Same exemption applies to licensed before and after school programs. |
| Summer camp (licensed, under 14 years, 24+ hours) | Exempt | Licensed camp programs of 24 hours or more for children under 14 are exempt. |
| Unlicensed childcare (more than 24 hours per week) | Taxable at 13% | Childcare services that are NOT licensed under CCEYA and provide more than 24 hours of care per week are TAXABLE. You must charge 13% HST. |
| Meals and snacks included in childcare fee | Exempt (bundled) | Food provided as part of the childcare service is included in the exemption. No separate HST. |
| Additional services (photography, field trips, enrichment programs) charged separately | May be taxable | Additional services charged as a separate fee outside the childcare agreement may be taxable depending on the nature of the service. |
CRA Registration Included Free with Every $35 Incorporation
We register your Business Number, Payroll and Corporate Tax accounts as part of your incorporation.
Exempt Means No ITCs: Because licensed childcare fees are GST/HST exempt (not zero-rated), your daycare corporation cannot claim Input Tax Credits on business purchases. The HST you pay on rent, equipment, supplies, food and professional fees is a cost, not a recoverable credit. This is one of the most important financial planning points for daycare operators. Factor the non-recoverable HST into your expense budget. At $200,000 in annual expenses, the embedded HST is approximately $23,000 that cannot be recovered.
Step 6: Enrol in the CWELCC ($10/Day Childcare) Program
The Canada-Wide Early Learning and Child Care (CWELCC) agreement between the federal and Ontario governments provides fee reductions for families and operational funding for enrolled centres. Enrolment is voluntary but highly recommended because parents strongly prefer CWELCC-enrolled centres due to the reduced fees.
| CWELCC Element | Details |
|---|---|
| Parent fee reduction | Families pay a maximum of $22 per day (moving toward $10 per day by 2026). The government pays the difference to the centre through base fee funding. |
| Workforce Compensation funding | The government provides wage floor funding to ensure RECE (Registered Early Childhood Educator) staff are paid a minimum hourly rate. Supplements wages to attract and retain qualified staff. |
| Enrolment requirement | Must hold a valid CCEYA licence. Must agree to fee caps, reporting requirements and financial transparency conditions. |
| Reporting requirements | Enrolled centres must submit financial reports, enrolment data, staffing reports and fee schedules to the municipal CMSM (Consolidated Municipal Service Manager) or DSSAB. |
| Application | Apply through your local CMSM or DSSAB (e.g., City of Toronto Children's Services, Region of Peel Early Years, Region of York Children's Services). |
CWELCC Changes Your Revenue Model: In a CWELCC-enrolled centre, your revenue comes from two sources: parent fees (capped by the government) and government base fee funding (the difference between the cap and your approved operating cost). This means your revenue per child is effectively set by the government, not by the market. Financial planning for CWELCC centres requires modelling both funding streams and understanding the reporting obligations. We help daycare clients model CWELCC revenue and file the required financial reports.
Step 7: Get Daycare Insurance
| Insurance Type | Why Daycare Operators Need It | Typical Annual Cost |
|---|---|---|
| Commercial general liability (CGL) | Covers bodily injury to children, visitors and third parties. Slip-and-fall, playground injuries, allergic reactions. Most landlords require $2M to $5M minimum. | $2,000 to $6,000 |
| Professional liability (errors and omissions) | Covers claims of negligence in the care, supervision and instruction of children. Allegations of inadequate supervision, failure to report, or medication errors. | $500 to $2,000 |
| Abuse liability coverage | Covers defence costs and settlements related to allegations of physical, emotional or sexual abuse by staff or volunteers. Critical for childcare operations. | Included in most childcare CGL policies or available as an endorsement |
| Property insurance | Covers furniture, equipment, toys, educational materials and facility improvements against fire, theft, flood and vandalism. | $1,000 to $3,000 |
| Business interruption insurance | Replaces lost revenue during forced closure (fire, flood, public health order, building damage). | $500 to $1,500 |
| WSIB (workers' compensation) | Mandatory for Ontario employers. Covers workplace injuries for all staff. Childcare WSIB rates are based on payroll and classification. | $1.50 to $3.00 per $100 insurable earnings |
Step 8: Understand Daycare-Specific Tax Rules
| Tax Rule | What It Means for Daycare Operators | Dollar Impact |
|---|---|---|
| Childcare fees are GST/HST exempt | No HST charged to parents. No ITCs claimable on business expenses. The HST embedded in your operating costs is a permanent expense, not recoverable. | $200,000 in annual expenses = approximately $23,000 in non-recoverable HST |
| CCA on furniture, equipment and leasehold improvements | Cribs (Class 8, 20%), playground equipment (Class 8, 20%), furniture (Class 8, 20%), computers (Class 50, 55%), leasehold improvements (Class 13, straight-line over lease). Immediate Expensing up to $1.5M for CCPCs. | $80,000 in equipment and build-out generates $16,000 to $44,000 in first-year CCA depending on class and Immediate Expensing |
| Payroll and source deductions | Daycare is labour-intensive. CPP, EI and income tax must be deducted from every employee's pay and remitted by the 15th of the following month. Late remittance penalties: 3% to 20%. | 10 staff at $40,000 average = $400,000 payroll, $30,000+ in annual employer CPP and EI contributions |
| CWELCC funding is taxable revenue | Government base fee funding and workforce compensation funding received under CWELCC are taxable revenue to the corporation. They must be reported on the T2 return. | $300,000 in CWELCC funding is $300,000 in taxable revenue (offset by deductible expenses) |
| Director liability for payroll | Directors are personally liable for unremitted payroll source deductions under Section 227.1. Childcare operators who fail to remit face personal assessment. | $30,000 in unremitted source deductions = personal liability for the director plus penalties |
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Step 9: Set Up Daycare Bookkeeping
| System | What to Set Up | Why |
|---|---|---|
| Cloud accounting software | QuickBooks Online or Xero. Configure chart of accounts for daycare: parent fee revenue, CWELCC base fee funding, CWELCC workforce funding, payroll expense (by role), food costs, rent, supplies, insurance. | Monthly bookkeeping, CWELCC reporting, financial statements and T2 preparation flow from properly configured software. |
| Childcare management software | HiMama (Lillio), Sandbox or KidReports. Track attendance, parent billing, waitlists, staff scheduling and CWELCC compliance. | Ministry inspectors verify attendance records. CWELCC funding is based on enrolment data reported through the CMSM. |
| Payroll system | QBO Payroll, Wagepoint or ADP. Configure CPP, EI, income tax for all staff. Process bi-weekly or semi-monthly. | Daycare is labour-intensive (70-80% of costs). Accurate payroll is critical for both compliance and CWELCC wage floor reporting. |
| Bank account | Dedicated business chequing account. All parent fees and CWELCC funding deposited. All expenses paid from business. No personal transactions. | CWELCC-enrolled centres must demonstrate financial transparency. Mixed accounts fail both CRA audit and CMSM review. |
| Receipt management | QBO Mobile or Xero Hubdoc. Photograph every receipt for food, supplies, maintenance and equipment within 48 hours. | Childcare expenses are high-volume and easy to lose. Missing receipts mean unsupported deductions on CRA audit and CWELCC reporting gaps. |
Daycare Bookkeeping from $100/month
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Step 10: Budget Your Daycare Startup Costs
| Expense Category | Home-Based (5 children) | Small Centre (25 children) | Large Centre (60+ children) |
|---|---|---|---|
| Incorporation and CRA registration | $35 | $35 | $35 |
| Facility lease deposit | $0 (home-based) | $10,000 | $30,000 |
| Renovation and build-out (child-safe, code-compliant) | $5,000 | $40,000 | $120,000 |
| Furniture, cribs, mats, storage | $3,000 | $15,000 | $40,000 |
| Outdoor play equipment and fencing | $2,000 | $10,000 | $30,000 |
| Educational materials, toys, books | $1,000 | $5,000 | $12,000 |
| Kitchen equipment and food supplies | $1,000 | $5,000 | $10,000 |
| Licensing fees and inspections | $500 | $2,000 | $3,000 |
| Insurance (first year) | $2,000 | $5,000 | $10,000 |
| Working capital (3 months payroll + rent + food) | $5,000 | $60,000 | $180,000 |
| Childcare management software (first year) | $500 | $2,000 | $4,000 |
| Total estimated startup cost | $20,035 | $154,035 | $439,035 |
10 Mistakes New Ontario Daycare Operators Make
| # | Mistake | Consequence |
|---|---|---|
| 1 | Operating without a CCEYA licence for more than 5 children | Provincial offence. Fines up to $250,000 (corporation) or $50,000 (individual). Forced closure. Criminal record potential. |
| 2 | Not incorporating before opening | Personal liability for injury claims, negligence allegations and lease defaults. No SBD deferral. No LCGE on sale. |
| 3 | Falling below staff-to-child ratios | Licensing violation. Ministry issues a compliance order or licence conditions. Repeated violations lead to licence revocation. |
| 4 | Not budgeting for non-recoverable HST on expenses | $23,000+ per year in HST on a $200,000 expense base that cannot be claimed as an ITC. Many new operators miss this entirely. |
| 5 | Signing a lease without confirming childcare zoning | Forced relocation, lease liability on a property you cannot use and delayed opening by 6+ months. |
| 6 | Underfunding working capital (less than 3 months) | Daycare centres take 3 to 6 months to reach full enrolment. Running out of cash before break-even is the top reason new centres close. |
| 7 | Not enrolling in CWELCC | Parents choose CWELCC-enrolled centres over non-enrolled because fees are 50%+ lower. Non-enrolled centres struggle to fill spots. |
| 8 | Late payroll remittances | CRA penalty 3% to 20% on unremitted source deductions. Directors personally liable under Section 227.1. |
| 9 | No childcare management software from day one | Attendance records incomplete, parent billing errors, CWELCC reporting gaps and Ministry inspection failures. |
| 10 | No bookkeeping system in the first year | $5,000+ year-end cleanup, CWELCC reporting non-compliance, incorrect T2 and late filing with penalties. |
Avoid Every Mistake on This List. Start With a CPA.
Free consultation. We set up your daycare corporation, CRA accounts, bookkeeping and CWELCC reporting from day one.
Opening Day Checklist for Ontario Daycare Centres
- Corporation incorporated and Certificate of Incorporation received
- CRA Business Number registered (Payroll, Corporate Tax)
- CCEYA licence application submitted and licence issued by Ministry of Education
- Municipal zoning confirmed for childcare use
- Building permit closed out (if renovations were done)
- Fire safety plan filed and fire inspection passed
- Public health unit inspection passed
- Criminal reference checks with vulnerable sector screening completed for all staff
- Standard First Aid and CPR-C certification current for required staff
- Commercial general liability and professional liability insurance in place ($2M minimum)
- WSIB registration completed for all employees
- CWELCC enrolment application submitted to local CMSM or DSSAB
- QBO or Xero configured with daycare chart of accounts, payroll system active
- Childcare management software (HiMama, Sandbox) configured for attendance, billing and parent communication
Frequently Asked Questions: Starting a Daycare in Ontario
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