Salary sacrificing child care costs – some things to consider
22nd July, 2022
From 7 March 2022, changes to Government assistance to help with the cost of child care, means many families are now entitled to higher child care subsidies, however if you salary package your child care costs, you may not be entitled to them. 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.
Child care subsidy
If you have children under 13, not attending secondary school, who use an approved child care service, meet residency and immunisation requirements, and you are responsible for paying the child care fees, you may be entitled to Child Care Subsidy (CCS). Higher child care subsidy may be available if you have more than one child aged 5 or younger.
You may also be eligible for Additional Child Care Subsidy (ACCS) if you are experiencing temporary financial hardship, are an eligible grandparent getting an income support payment, transitioning from a certain income support payment to work, or caring for a child who is vulnerable or at risk. 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 Services Australia website.
Salary sacrificing child care costs
Importantly, if you choose to salary package your child care costs and your employer becomes liable for all or part of your child care fees, you will not be entitled to CCS or ACCS from the Government. An individual is only entitled to claim CCS or ACCS for fees that they are genuinely liable to pay themselves. If in addition to salary sacrificing some of your childcare costs you also pay for a portion yourself directly, you may be eligible for CCS or ACCS for this portion, providing you meet other eligibility criteria.
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.
You can find more information on Salary sacrifice arrangements for employees and Reportable fringe benefits – facts for employees on the Australian Taxation Office (ATO) website.
Getting tax advice
If you need tax advice you can contact a registered taxation agent or an accountant. Tax agents typically help individuals with lodging their personal tax return. If you are looking for advice on more complex tax issues you may be better to speak with an accountant. If you do not have an accountant, or know anyone who can recommend one for you, 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 minimum levels of experience and qualifications.
Getting financial advice
The ADF Financial Advice Referral Program available on the ADF Financial Services Consumer Centre’s website, may help you find a suitable financial adviser. 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 our short video 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. You could also read the page on our website on getting financial advice, so you’ll know what to expect and how to tell if you’ve received good advice.
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