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Understanding The New Child Care Subsidy

Understanding the Child Care Subsidy

On July 2, 2018, the Government’s new Child Care Subsidy took effect, and while one million Australian are families better off, the Department of Education estimates 280,000 families are worse off. Here’s what you need to know.

Child Care Subsidy eligibility basics:

  • Care for a child 13 or younger and not attending secondary school, unless an exemption applies
  • Use an approved child care service
  • Responsible for paying the child care fees
  • Meet residency and immunisation requirements

The single payment Child Care Subsidy replaces the two old payments, the Child Care Benefit and the Child Care Rebate, is paid directly to the service provider, and for the first time, is means tested. Families are required to update their details through the Australian Government’s MyGov website or education.gov.au/childcare, providing an estimate of combined household income, details of hours worked (Activity Test) and type of care used.

If you’re a low-income or middle-income family where both parents work or with a single working parent, you’ll likely be better off under the new Child Care Subsidy; however, higher income families are likely to be thousands out of pocket due to fundamental changes in the subsidy rate and the annual cap.

Under the changes, the lowest-income families will be paid the most: 85 per cent of their childcare costs. From there the Child Care Subsidy gradually tapers down as earnings increase. The lowest subsidy available is 20 per cent for the highest-earning families before it cuts out at $351,258.

Here’s a quick snapshot of the subsidy you will get according to your family income:

Up to $66,958: 85 per cent
$66,958–$171,958: 85–50 per cent
$171,958–$251,248: 50 per cent
$251,248–$341,248: 50–20 per cent
$341,248–$351,248: 20 per cent
More than $351,248: No subsidy

*Families earning $66,958* or less a year can access up to 24 hours of care a fortnight without having to meet the required ‘Activity Test.’

For families earning under $186,958 the former annual cap of $7613 per child has been abolished, while those receiving more than this figure but less than $351,248 will be able to claim the new Child Care Subsidy up to $10,190 per child.

The subsidy rates outlined are not a percentage of your daily childcare fee but a percentage of an hourly fee cap. As this is an hourly fee cap, you need to multiply it by the number of hours a day that your chosen centre is open to get the daily fee cap. Then multiply this by the Subsidy Rate that applies to your income to determine the actual amount per day you are entitled to.

The hourly fee caps for each type of service are:

Centre-based day care: $11.77 per hour
Family day care: $10.90 per hour
Outside school hours care: $10.29 per hour
In-home care (with nannies, au pairs): $25.48 per hour (per family)

For example, the hourly fee cap for family day care is $10.90. If your centre is open for 8 hours a day then the daily fee cap will be $87.20. If your family income gives you a Child Care Subsidy rate of 20% then you will get back 20% of $87.20 which amounts to $17.44.

If your centre charges above the daily fee cap you will be left to fund the difference. The Government, however, has been vocal about naming and shaming care providers who hike their rates in response to the new subsidy.

To be eligible for the Child Care Subsidy, you need to be performing an ‘Activity’ which includes paid work, maternity leave, studying and training, unpaid work for a family business, looking for work, volunteering, self-employment and other activities on a case-by-case basis. It is the number of hours of that “Activity” a parent performs in a fortnight that provides a corresponding number of hours of Child Care Subsidy that can be applied to your fees.

Here’s the breakdown of hours of ‘Activity’ and subsequent hours of subsidised care:

8–16 per fortnight: 36 per fortnight
16–48 per fortnight: 72 per fortnight
48+ per fortnight: 100 per fortnight

What is important to note is, the hours of activity will relate to the parent working the lower number of hours. If you have a stay at home parent who doesn’t work at all, you’re not entitled to the rebate, unless your combined income is under $66,958. The Government argues the new policy will encourage workforce participation, which it does. However, beyond ‘participation’ it becomes a game of hours, relying on the flexibility of the secondary income earners employer to fine tune an amount that makes financial sense for each family.

While the removal of the annual cap for families earning under $186,958, and boosting it for families earning above that amount, will relieve many during the final months of the financial year, the new Subsidy hurts families earning above the $351,248 and those who have one parent not working.

It’s also worth noting that your actual subsidy entitlement will be worked once your adjusted taxable income is known (after you have lodged your tax return). The government will withhold 5% of your weekly Child Care Subsidy entitlement until reconciliation of your tax return at the end of the financial year. Any amount owing to you will be paid as a lump sum by the government. If you have been paid too much Child Care Subsidy, you will have a debt to repay.

Families who have yet to complete their Child Care Subsidy online assessment will have until 23 September 2018 to do so and subject to availability, your subsidy will be paid in arrears back to 2 July 2018. Head to Education.gov.au for all you need or try Goodstart’s handy Subsidy estimator to get an idea of what you’re entitled too. 

How has the new Child Care Subsidy affected you? Tell us about it in the comments below.

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