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Australia Childcare Benefits Tax Guide

Australian childcare benefits and tax rules. The guide covers: the Child Care Subsidy (the 'CCS') — the 'CCS' is the 'government subsidy' paid by the 'Services Australia' (the 'Centrelink') to the 'approved child care providers' to 'reduce the child care fees' for the 'eligible families'; the 'CCS' is 'based on the family's 'combined income' (the 'income test') and the 'activity level' (the 'activity test'); the 'CCS rates' for the '2025-26 year': (i) the 'families with the combined income below $85,000' — the 'maximum CCS rate of 90%', (ii) the 'families with the combined income above $85,000' — the 'CCS rate reduces by 1% for each $5,000 of the income above $85,000', (iii) the 'families with the combined income above $365,000' — the 'CCS rate of 0% (the 'no CCS' for the 'higher-income families'); the 'CCS' is 'paid directly to the child care provider' and the 'family pays the 'gap fee' (the 'difference between the fee and the CCS'); the Additional Child Care Subsidy (the 'ACCS') — the 'ACCS' is the 'additional subsidy' for the 'families with the special circumstances': (i) the 'ACCS for the grandparents' (the 'grandparenting ACCS'), (ii) the 'ACCS for the families with the disability', (iii) the 'ACCS for the families in the 'financial hardship'', (iv) the 'ACCS for the families in the 'transition to the work''; the FBT on the employer-provided childcare — the 'employer-provided child care' (the 'employer-provided child care centre' or the 'employer-paid child care fees') is the 'fringe benefit' under the 'FBTAA 1986'; the 'child care fringe benefit' is 'exempt from the FBT' if the 'child care is provided at the 'employer-provided child care centre' (the 'exempt child care centre' under the 'Section 47 of the FBTAA 1986'); the 'employer-paid child care fees' at the 'external child care centre' are 'subject to the FBT at 47%' (unless the 'otherwise deductible rule' applies); the 'salary sacrifice for the child care' — the 'employee can 'salary sacrifice' the 'child care fees' (the 'employer pays the child care fees on the behalf of the employee' and the 'employee reduces the before-tax salary'); the 'salary-sacrificed child care' is the 'fringe benefit' — the 'FBT may apply' (the 'FBT at 47% unless the 'exemption' applies); the 'reportable fringe benefits amount (the 'RFBA')' from the 'salary-sacrificed child care' is 'reported on the employee's income statement' and 'affects the means testing for the CCS' and the 'Medicare levy surcharge'.

Child Care Subsidy

  • CCS rate up to 90%: The 'maximum CCS rate' is 90% for the 'families with the income below $85,000'.
  • Activity test: The 'CCS' is based on the 'family's activity level' (the 'work, the study, the volunteering').
  • Hourly rate cap: The 'CCS' is 'capped at the hourly rate cap' — approximately $14.29 per hour for the 'centre-based day care'.

For the family tax benefits and the government payments, see the Services Australia website (www.servicesaustralia.gov.au).

FBT & Salary Sacrifice

  • FBT exemption: The 'employer-provided child care centre' is 'exempt from the FBT'.
  • External child care — FBT applies: The 'employer-paid child care fees' at the 'external centre' are 'subject to the FBT at 47%'.
  • Reportable fringe benefit: The 'salary-sacrificed child care' is the 'reportable fringe benefit (the RFBA)'.

For the FBT rules and the exemptions, see our Fringe Benefits Tax Guide →.