Your family income and the new Child Care Subsidy
Your combined family income is one of three key factors that determines how much Child Care Subsidy you will receive from 2 July 2018. Generally, as family income increases, the amount of Government subsidy decreases.
The other two factors determining your Child Care Subsidy is your fortnightly activity
– such as work, study or volunteering, and the type of service your child attends*.
Understanding the Child Care Subsidy can be confusing at times. So, it’s worthwhile getting a good understanding of how the new subsidy is calculated and how it may impact your child care payments.
Rates of subsidy based on your combined family income^
Here’s a breakdown of the percentage of subsidy the Government will contribute to your child care based on your combined family income:
- Families earning $66,958 pa or less will receive a subsidy of 85% of their child care fees up to the rate cap of $11.77 per hour.
- For families earning between $66,958 to under $171,958 pa, the subsidy gradually tapers down from 85% to 50%, receiving 1% less for every $3000.
- Families earning $171,958 to under $251,248 pa will receive a subsidy 50% of their fees.
- For families earning $251,248 to under $341,248 pa, the subsidy gradually tapers down from 50% to 20%, receiving 1% less for every $3000.
- Families on $341,248 to under $351,248 pa will receive a subsidy of 20% of their fees.
- Families earning $351,248 pa or more will receive no subsidy.
New hourly rate caps based on the type of child care service
The Government has set a rate cap for different types of child care services. For centre based care it is $11.77 per hour, for children attending family day care it is $10.90 per hour and for children attending outside school hours care it is $10.29 per hour.
The government will pay a percentage of child care subsidy up to the relevant rate cap. Some services will charge above the relevant rate cap and some services will charge below the relevant rate cap.
For long day care, the child care subsidy will be paid as a percentage up to $11.77 per hour. This means if your service charges above $11.77, the subsidy will only be applied to the $11.77 per hour, and families will be responsible for paying the remaining gap.
Scenario: Family with a combined family income of $65,000 and entitled to a subsidy of 85% and meets the activity test.
Family 1 is
Examples of how the hourly rate caps are calculated
charged $110 per day for a 11-hour long day care session – that is, $10 per hour. As this is less than the maximum hourly rate cap of $11.77, the percentage of subsidy (85%) will be based on what they pay - $10. The family would be entitled to a subsidy of $8.5 per hour. The family’s out of pocket costs would be $1.50.
85% x $10 = $8.5 per hour;
$10 - $8.50 = $1.50. This means that the family’s out of pocket expenses would be $1.50 per hour of care
is charged $150 per day for a 12-hour session – that is $12.50 per hour. Because this is more than the maximum hourly rate cap of $11.77, the family would be entitled to a subsidy of 85% of the capped rate of $11.77. This means that the family’s out of pocket expenses would be $2.50 per hour of care.
85% x $11.77 = $10.00 per hour;
$12.50 – $10.00 = $2.50
This means that the family’s out of pocket expenses would be $2.50 per hour of care
Positive changes to the annual subsidy cap
One of the benefits of the new Child Care Subsidy is the removal of the annual cap for low and middle-income families.
If your total combined family income is $186,958 pa or less, the annual subsidy cap has been removed.
If your family earns more than this (between $186,958 and $351,248 pa), the cap will be increased to $10,190 per child per year (the current rebate cap is $7,613).
This is great news for families who hit this cap well before the financial year is out and find themselves paying full fees or reducing their number of days of care until the annual cap resets. It will also remove the barrier for families wanting to work extra shifts, or increase the days their child attends care.
How do I calculate and report my income?
If you are currently receiving Child Care Benefit and/or Child Care Rebate, you will need to complete a Child Care Subsidy assessment and apply for the subsidy via myGov. During this process families will be asked to provide their estimated 2018-19 combined family income and their activity details.
If you don’t already have one, register now for a myGov account as this is how the government will communicate what you need to do to transition to the new subsidy system.
Your subsidy percentage will be based on your estimated combined annual family income. Your actual subsidy entitlement will be worked out at end of year reconciliation when your actual adjusted taxable income is known (after you have lodged your tax return).
The easiest way to estimate your income is to base it on your previous year's tax return as well as any expected pay rises.
Note that 5% of your weekly Child Care Subsidy entitlement will be withheld by the government. Following 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.
To get a better understanding of what is considered income, we recommend you visit the ATO website
and search for Adjusted Taxable Income.
Want to get a subsidy estimate?
You can try our simple subsidy estimator
to get an idea of how your current payments will be impacted – click here to use the estimator.
*There are also eligibility requirements to receive Child Care Subsidy for a child (such as immunisation and residency requirements).
^References to the hourly rate cap, income thresholds and annual cap are correct for 2018/19 and may be subject to adjustment through indexation in subsequent years.
Source: Information sourced from the Department of Education and Training https://www.education.gov.au/ChildCarePackage