Childcare inquiry to examine tax breaks

The federal government has announced the establishment of a Productivity Commission Inquiry into Child Care and Early Childhood Learning. Prime Minister Tony Abbott said the inquiry will identify how the system can become more responsive to the needs of parents.

Abbott said the government wanted a childcare system that was “more capable of responding to the dynamic and individual needs of parents”.

Childcare has become a major issue for all employers, including SMEs.

The scope of the inquiry says the Productivity Commission should use evidence from Australia and overseas to report on and make recommendations about matters such as the contribution that access to affordable, high quality childcare can make, and the current and future need for childcare in Australia.

The inquiry has also been asked to look at options for enhancing the choices available to families as to how they receive childcare support, so that this can occur in the manner most suitable to their individual family circumstances. Mechanisms to be considered include subsidies, rebates and tax deductions, to improve the accessibility, flexibility and affordability of childcare for families facing diverse individual circumstances.

The existing tax law has an impact on childcare, some of it not that straightforward.

Under the current tax laws, childcare benefit and childcare rebate are exempt from tax. On the other side, child-minding costs are private expenditure, which is not tax deductible, even though they are expenses that may be incurred on account of a taxpayer’s employment.

For fringe benefits tax (FBT) purposes, contributions made by an employer under an approved program to obtain priority of access to an eligible childcare centre, an approved centre-based long day-care service, an approved family day-care service, an approved outside school hours care service or an approved in-home care service are exempt from FBT.

Another specific FBT exemption applies to a childcare facility on an employer’s business premises or, if the employer is a company, of a related company’s business premises. The facility need not be exclusively for children of the employer’s employees and attendance at the facility by children of the employees of an unrelated employer does not necessarily negate the exemption (although the exemption is only available in respect of employees’ children).

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