Can You Salary Sacrifice Childcare Fees in Australia?
Quick summary
For most Australian families, it is not possible to salary sacrifice childcare fees. This is because childcare is considered a private expense, and an employer paying for it would attract a high tax (FBT). The only major exception is for childcare provided by an employer at their own business premises, which is very rare.
Key takeaways
- Understand that childcare is usually a private, post-tax expense.
- Learn why Fringe Benefits Tax (FBT) makes salary sacrificing unattractive.
- Discover the rare exception for employer-provided, on-site childcare.
- Focus on the Child Care Subsidy (CCS) as the main form of support.
- Use funded kindergarten programmes to significantly reduce your kinder fees.
Can You Salary Sacrifice Childcare Fees in Australia?
Childcare is one of the biggest expenses for working families. It’s natural to look for ways to make it more affordable. One question we hear from time to time is about salary sacrificing: can you pay for your childcare fees from your pre-tax salary to save money?
It’s a great question, but the answer is unfortunately not straightforward. For the vast majority of families, the answer is no. In this article, we’ll explain why this is the case, explore the rare exceptions, and outline the most effective ways to reduce your childcare costs, like the Child Care Subsidy (CCS).
What is Salary Sacrificing?
Before we dive into the details, let’s quickly explain what salary sacrificing (also called salary packaging) is. It’s a formal arrangement you make with your employer where you agree to receive less of your pre-tax income. In return, your employer provides you with benefits of a similar value.
Because the benefit is paid for from your salary *before* income tax is taken out, you reduce your taxable income. This means you could pay less tax. Common things people salary sacrifice include extra superannuation contributions, a car through a novated lease, or a laptop.
However, the Australian Taxation Office (ATO) has very specific rules about what can and can’t be sacrificed. This is especially true when it comes to private expenses like childcare.
The General Rule for Childcare Fees and Tax
In Australia, childcare is generally considered a private or domestic expense. It is not seen as an expense you incur to earn an income, like work-related training or uniforms. Because of this, you almost always have to pay for it with your post-tax salary — the money you receive in your bank account after your employer has deducted income tax.
This means you can’t claim childcare fees as a tax deduction on your personal tax return. It also means that for most people, salary sacrificing is not an option. If an employer were to pay for your childcare at an external centre like ours, it would create a tax problem for them.
This tax problem is called Fringe Benefits Tax, or FBT. It’s the main reason why salary sacrificing for childcare is not widely available.
Understanding Fringe Benefits Tax (FBT)
When an employer provides a non-cash benefit to an employee, it’s often called a 'fringe benefit'. The government taxes employers on the value of these benefits. This is the Fringe Benefits Tax (FBT).
The FBT rate is set at the highest personal income tax rate (currently 47%). This is to stop people from avoiding tax by taking their salary in the form of benefits instead of cash. If your employer paid your $10,000 yearly childcare bill, they would then face an FBT liability on that amount, which could be thousands of dollars. As you can imagine, this makes it very unattractive for an employer to offer.
They would essentially be paying for your childcare and then paying a large tax bill on top of it. This high tax is the primary barrier that prevents employers from offering childcare as a salary sacrifice benefit for centres like our childcare centre in Bayswater.
The Main Exception: On-site Childcare Centres
There is one major exception to the FBT rule. An employer does not have to pay FBT if they provide childcare in a centre that is located on their own business premises.
If your workplace is large enough to operate its own childcare centre in the same building or on the same site where you work, they may be able to offer FBT-free childcare. In this specific situation, you might be able to salary sacrifice your fees. This is because the government wants to encourage employers to provide on-site care, making it easier for parents to return to the workforce.
However, this is very rare in Australia. Most businesses do not have the space, resources, or expertise to run a childcare centre. The vast majority of families use external early learning centres, like Meraki, which are not eligible for this FBT exemption.
How Does This Relate to Your Child Care Subsidy (CCS)?
The Child Care Subsidy (CCS) is the main way the Australian Government helps families with the cost of care. It’s a payment that is paid directly to your childcare provider to reduce the fees you pay out-of-pocket.
Your CCS percentage is based on your family's combined annual income. The lower your income, the higher your subsidy. Because salary sacrificing can reduce your taxable income, it’s important to understand how this might interact with your CCS. For Centrelink purposes, your income is often calculated as your 'adjusted taxable income', which can include salary-sacrificed amounts.
This means that even if you were able to salary sacrifice (for example, for a car), the sacrificed amount might be added back on when Centrelink calculates your income for CCS. This is complex, and the rules are very specific. For any questions about how your income affects your CCS, it is essential that you speak directly with Services Australia for advice tailored to your personal circumstances.
Better Ways to Manage Your Childcare Costs
While salary sacrificing is not a realistic option for most, there are other, far more effective ways to manage your childcare costs.
- Maximise Your Child Care Subsidy (CCS): This is the most significant help available. Ensure you have applied through Centrelink and that your income and activity details are always up to date. The 'activity test' determines how many hours of subsidised care you can receive, so reporting your work, study or volunteering hours correctly is very important.
- Take Advantage of Funded Kindergarten: At Meraki, we offer government-approved and funded kindergarten programmes. Families with children in our Three-Year-Old Kinder programme or Four-Year-Old Kinder programme receive a substantial government contribution towards their fees. This makes the kinder component of the day incredibly affordable and significantly reduces your overall costs.
- Choose an All-Inclusive Service: Budgeting is easier when there are no surprises. Our daily fee at Meraki includes everything your child needs for the day: nutritious meals and snacks prepared by our on-site chef, nappies, wipes, sunscreen, and all educational programmes and incursions. You don’t have to worry about packing lunches or paying extra for special activities.
Instead of focusing on complex tax arrangements, using the CCS and funded kinder programmes are the most reliable and beneficial ways to make high-quality care affordable. If you'd like to see how our programmes work, we'd love to show you around our childcare in Mooroolbark.
We're Here to Help
Navigating the costs of childcare can feel overwhelming, but you are not alone. While salary sacrificing is rarely an option, robust government support is available to make quality early learning accessible.
Our friendly directors at Mooroolbark and Bayswater are always happy to explain our fees, how the Child Care Subsidy works with our billing, and the incredible value offered through our funded kindergarten programmes. For more information or to book a tour, please get in touch with us today.
Frequently asked questions
Is childcare tax-deductible in Australia?
No, childcare is generally considered a private expense and cannot be claimed as a tax deduction on your personal tax return. The Australian Taxation Office (ATO) does not view it as a cost incurred to earn an income. The primary financial support for families is the Child Care Subsidy (CCS), not tax deductions.
What is Fringe Benefits Tax (FBT)?
Fringe Benefits Tax (FBT) is a tax paid by employers on certain non-cash benefits they provide to their employees, such as paying for a car or health insurance. The current FBT rate is high (47%), which makes it expensive for employers to offer most benefits. This tax is the main reason why salary sacrificing childcare fees is not a viable option for most employers.
How do I know if I'm eligible for the Child Care Subsidy (CCS)?
CCS eligibility depends on a few key factors. Your child must meet immunisation requirements, and you or your partner must meet residency rules. Your subsidy amount is then based on your combined family income, the hourly rate cap, and the hours of recognised activity (like work, study, or volunteering) you do. The best way to check your eligibility is by using the calculator on the Services Australia website or applying through your MyGov account.
Does salary sacrificing affect my CCS payments?
It can. Your CCS is calculated using your 'adjusted taxable income,' which includes your taxable income plus other items like reportable fringe benefits. This means any benefits you salary sacrifice might be added back to your income for the CCS income test. Because this can impact your subsidy, you should always get personalised advice from Services Australia.
What’s included in Meraki's daily fees?
At Meraki, our daily fee is all-inclusive to make budgeting simple for families. It covers all nutritious meals and snacks prepared by our on-site chef, nappies, wipes, and sunscreen. It also includes all educational programmes, incursions (like visiting performers), and special events throughout the year. There are no hidden costs or extra levies.
Is kindergarten cheaper than long day care?
Government-funded kindergarten programmes significantly reduce the cost of care for eligible children. At Meraki, children enrolled in our Three or Four-Year-Old Kinder programmes receive a direct government subsidy on their fees. This makes the kindergarten portion of their day much more affordable, lowering your overall out-of-pocket expense compared to a regular long day care spot for a younger child.
Book a tour of Meraki ELC
Want to see how we'd answer this for your family? Book a tour at our Mooroolbark or Bayswater centre — or use the contact form and we'll come back to you within one business day.