So just when you finally figured out how the last Child Care Rebate system works (kudos to you for figuring it out!) – it changes again!
From 1 July 2018 it’s going from a two payment system to a single payment – a new Child Care Rebate.
What is going?
The current Child Care Rebate – which offers 50 per cent of fees up to annual cap of $7500 will be gone and the means-tested Child Care Benefit will be completely scrapped.
What is the new system?
A new system which pays a single benefit / subsidy will replace it.
Three things will determine the subsidy level for individual families:
Combined family income:
- Under $65,710 = 85% subsidy
- Between $65,710 & $170,710 = Gradually reducing to 50%
- Between $170,710 & $250,000 = 50% subsidy
- Between $250,000 & $340,000 = Gradually reducing to 20%
- Between $340,000 & $350,000 = 20% subsidy
- Over $350,000 = Nothing!
Families with a combined income of $350 000 or more will no longer be eligible for subsidised childcare.
How much parents work
The activity test requires both parents to work, study or volunteer at least eight hours a fortnight.
In two parent families both parents, unless exempt, must meet the Activity Test. Assessment is based on the parent with the lowest number of hours of activity.
So a husband working 50 hour week and a wife working a 20 hour week – it is the 20 hours per week that will be used to assess eligibility under the activity test.
To be eligible for the maximum number of hours of subsidy which is 100 hours per fortnight, parents need to demonstrate 48 hours of ‘activity’ per fortnight.
Aside from working in either paid or self-employment, the following would also constitute ‘activity’ for subsided child care:
- Unpaid work in a family business
- Training courses for improving work skills / employment prospects
- Actively looking for work!
Families earning less than $65,710 a year will be able to access 24 hours of subsided care per fortnight without having to meet the Activity Test.
What kind of care you use (day care, family day care, after school care)
For centre based day care the maximum hourly rate cap is $11.55, for Family Day Care the maximum hourly rate cap is $10.70 and for Outside school care the maximum hourly rate cap is $10.10.
If your centre or carer charges LESS than this per hour, you will receive a subsidy based on the actual rate you are charged. If your centre or carer charges MORE than the maximum hourly rate cap for subsidy calculation, you will pay the gap out of pocket.
What we like
- The removal of the $7,500 childcare rebate cap for families earning under $185,710 will be a relief to families who hit this cap well before the financial year is out and find themselves paying exorbitant fees until the cap resets.
- There is a new increased cap of $10,000 for families earning between $185,710 and $350,000 which means the rebate will be stretched further throughout the year.
- The Child Care Safety Net will also ensure families who do not meet the activity test and are earning $65,710 or less have access to 24 hours of subsidised care per fortnight so they have opportunities to look for employment or more work if they are in a position to do so, and so their kids have access to early learning opportunities too
What we don’t like
- The activity test requires both parents to work, study or volunteer at least eight hours a fortnight.
- Those families with stay at home parents (mums or dads) who don’t work enough to be eligible for subsidy whose combined household income exceeds $65,710 per annum will lose out on subsided care.
- Why do this group need care if there’s a parent at home? Maybe they have no other family around & therefore need help, they may have younger kids at home, they may want their children to experience the social & educational benefits of care outside the home, there may be other social, emotional or psychological reasons why children from these households would benefit from subsidies child care on a part time basis.
Who’s better off?
Families with incomes less than (but close to) $250,000
If your household income is nearer the $250,000 threshold, both parents work close to or full time hours & you use relatively inexpensive childcare (meaning, your centre or carer charges close to or in line with the hourly fee cap) – you are likely to be better off.
This is because where before the maximum you could get would be 50% up to $7,500 per annum (and you would run out of subsidy before the year end) you are now going to be eligible for at least a 50% probably higher rate of subsidy meaning you are less out of pocket.
Who’s worse off?
Families with incomes over $350,000
Where before you guys could claim 50% back per child up to a maximum of $7,500 per annum – you will no longer be entitled to a subsidy. So your child care budget just jumped $7,500 for the next (and subsequent) financial years.
Families with combined incomes over $250,000
Most, though not all, families earning over $250,000 it seems will be negatively affected. Let’s take a combined household income of $300,000 per annum for example.
Under the old system you would have been eligible for 50% subsidy (up to the $7,500 cap). Under the new system and based on that annual income you would be eligible for, say, 35% subsidy (up to a $10,000 cap). So your out of pocket on a weekly basis is likely to go up, although, the rebate may last you longer throughout the year than previously did.
How to get financially prepared for the changes
- Remember that child care is a temporary expense
Once the kids go off to school, you’ll no longer have the expense of day care fees. So even if your child went to full time care from birth that’s a 5 year expense. Of course most families have multiple children, so the timeframe is often pushed out further than 5 years but it is still a temporary expense nonetheless. So whatever you have to do to fund the cost, whatever lifestyle and other financial sacrifices you are making to fund this period of your life, remember that it is a temporary financial expense
- Get an estimate to work with
Use the governments Child Care Subsidy Estimator to work out what the impact is likely to be for your family. Remember this is an estimate but it gives you something to work with for budgeting purposes. You can access it here
- Get your budget out
Time to revisit the family budget to see what the net impact is going to be for you. Then have a look through the budget to see what (if anything) you’re going to need to cut back on in order to fund the additional expenses
- Look at alternative care options
Do you have a child who is turning 4 next year? If so, perhaps you can switch them into a community pre-school where the daily rates (although not eligible for subsidy) are much lower, sometimes up to half or more than that charged by the long day care centres. Even though you are not getting a rebate, you might still be better off from an out of pocket point of you where you’re only sending your child a few days a week.Alternatively, if your centre or carer is a more expensive centre you may want to look for a centre than charges in line with the maximum hourly rate caps for subsidy calculation. This could mean you pay less out of pocket as the percentage of fees that the centre charges over and above this rate comes straight out of your pocket.
Don’t be too frightened or put off by these changes.
The media puts out a lot of doom and gloom whenever there are changes to family assistance payments knowing full well that childcare fees are huge financial burden for most families and therefore – great click bait!!
Remember that there will always be financial challenges throughout life, some that you likely have no control over. But remaining interested and engaged and on top of your family finances not only maximises financial returns, but will allow you to thrive in changing conditions!!
Need help with your household budgeting?
Get in touch to discuss with me how I can help you with tailored cashflow advice and a system that will get you cracking along in no time!!