Salary sacrificing child care costs – some things to consider
Frank Lilley
18th September, 2018
There have been changes made recently to the assistance provided by the Government to help with the cost of child care. This article provides a brief summary of the changes and how salary packaging child care costs may affect families. It is for general information purposes only. We encourage you to seek your own independent taxation and financial advice before making any decision on whether to salary sacrifice your childcare costs.
New child care payments
From 2 July 2018, the new Child Care Subsidy (CCS) replaced the pre-existing Child Care Benefit and Child Care Rebate. Likewise, the Additional Child Care Subsidy (ACCS) replaced the Special Child Care Benefit, Grandparent Child Care Benefit and Jobs, Education and Training child care fee assistance. For more information on eligibility for and details on CCS, ACCS and a range of other payments you may be entitled to, see the document A Guide to Australian Government Payments which is available on the Health and Human Services website.
Salary sacrificing child care costs
Importantly, if you choose to salary package your child care costs this may mean you are not entitled to child care payments from the Government. An individual is only entitled to claim CCS or ACCS for fees that they are genuinely liable to pay themselves. So where the employer (in our case Defence) is liable to pay your childcare costs, because you have salary packaged them, you are not entitled to claim CCS or ACCS for those childcare costs. If in addition to salary sacrificing some of your childcare costs you also pay for a portion yourself directly – you may be able to claim CCS or ACCS for this portion subject to you meeting the other eligibility criteria for the payments.
Salary packaging and fringe benefits
Also, it’s important to know that like many other salary packaging arrangements, if you salary sacrifice your childcare costs this will likely be classified as a fringe benefit. This means that Defence may need to pay fringe benefits tax on the benefit provided to you. You do not need to pay fringe benefits tax. But the fringe benefit provided to you may be reported on your payment summary (formerly group certificate) at the end of the financial year and may be used to calculate a range of things including your:
- Medicare levy surcharge
- deductions for personal super contributions
- super co-contribution
- certain tax offsets
- private health insurance rebate
- Higher Education Loan Program (HELP) or other student loan repayments
- child support obligations
- entitlement to certain income-tested government benefits.
Getting tax advice
Two sources of tax advice are registered taxation agents (tax agents) and accountants. The focus of many tax agent’s practice is helping individuals with lodging their personal tax returns. If you are seeking advice that is about more complicated issues than simply lodging your return you may be better placed seeing your accountant rather than a tax agent. If you do not have an accountant you may be able to locate a suitable one through either Certified Practising Accountants (CPA) Australia or the Chartered Accountants Australia & New Zealand. Both of these professional bodies have fairly high minimum levels of experience and qualifications. We often advise members to also speak to their colleagues or family to find out if they have a tax agent or accountant they can recommend.
Getting financial advice
We would encourage you to use the ADF Financial Advice Referral Program list available on the ADF Financial Services Consumer Centre’s website www.adfconsumer.gov.au if you are seeking financial advice. The program is endorsed by the Chiefs of Service Committee (COSC) and provides a list of financial advisers who have made legally binding undertakings to Defence about the way they do business and how they charge fees, meaning that they are free from remuneration-based conflicts of interest, like commissions and asset-based fees.
We would also encourage you to watch the short video by the ADF Financial Services Consumer Centre on obtaining financial advice called Financial Advisers – the Facts and the Fiction, for a quick overview of some of the major considerations for seeking financial advice and choosing a suitable adviser for. The video is available for streaming on the ADF Financial Services Consumer Centre website. The Australian Securities and Investments Commission’s MoneySmart website also has a guide on choosing a financial adviser which you may find useful.
More information
Frank Lilley
Operations Manager
ADF Financial Services Consumer Centre
