The new Child Care Subsidy and what it means

Changes are coming to the way Australian families receive support for child care costs.

By Melanie Hearse

Are you ready for funding changes?

  • The Child Care Benefit and Child Care Rebate will be replaced by the Child Care Subsidy on 2 July 2018
  • Don't miss the deadline to apply for the new subsidy
  • New benefits will be income-tested, and the amount of hours you can claim will be subject to an activity test

It's an overhaul designed to provide the greatest hours of support to the families who work the longest hours, and the greatest subsidy and financial support to the families who earn the least. It's also supposed to encourage an estimated 230,000 families to increase their involvement in the workforce.

But as is often the case with changes to benefit payments, there's confusion for families trying to work out whether they'll be better or worse off – or experience very little change at all.

Act now to lock in your subsidy

Perhaps the most important point to note is that if you currently receive either the Child Care Benefit or Child Care Rebate, you won't automatically receive the Child Care Subsidy from 2 July. You need to apply for an assessment through the MyGov website or risk receiving no assistance with child care fees.

That's the message that's been given to families by both government and service providers as the deadline to act has approached.

"We've seen almost 940,000 families already switch over to the new system or about 80.8%, which is fantastic, but there are still some families that need to complete their online assessment," says Minister for Human Services Michael Keenan.

"I know how busy many families can be and they might be leaving the switchover to the last minute, but there's hundreds if not thousands of dollars on offer for families and nearly one million families are set to benefit," he says.

We surveyed CHOICE staff to see what they thought of the changes.

Ren Matthews, whose seven-year-old daughter attends out-of-school hours (OOSH) care, thinks the changes were well communicated. "I got emails from MyGov to tell me I had to fill out the forms and our child care also sent reminders and explainers," she says.

Kate Bower, a parent of two girls aged five and two, agrees. "The fact that you have to go and do something has been well communicated, but what you actually have to do has been less clear."

Kate isn't alone in finding the system complicated. Alice Richard, mum to one child aged three, also found the process less than straightforward. "It was quite confusing, but it's always been confusing so that's nothing new," she says.

And what may happen if you don't complete your assessment? While there are contingency plans in place to support families, if they don't make the switch the payment may not be made to their child care provider and they may have to pay full fees. If you make a late application, Centrelink will only backdate your subsidy by 28 days.

How the subsidy works: two old payments will become one

Here's a breakdown of the key changes and how they may affect your family. For a personalised estimation, check out the Department of Human Services calculator.

The shake-up will see the means-tested Child Care Benefit (CCB) and the non means-tested Child Care Rebate (CCR) payments combined into a single, means-tested Child Care Subsidy. The subsidy covers a percentage of your child care hourly fee, with the percentage determined by your household income.

Annual caps have been removed for low- and middle-income families. These have been replaced with caps on the amount you can receive per hour of care. These hourly rate caps are designed to keep a handle on child care fees. The maximum subsidy will depend on your child's age and the type of care they're in.

A new activity test will also determine how many hours of care will be subsidised a fortnight. The more hours you spend doing things like working, studying or volunteering, the more hours you'll be eligible to claim the subsidy for. For a couple, this test will apply to the partner who does the fewest hours – if one parent works full-time and the other part-time, for example, the part-time worker's hours will be counted.

If you earn $186,958 or less a year you'll no longer be limited by an annual $7613 cap on the amount of child care you can access. Families earning over $186,958 and under $351,248 will have an annual cap of $10,190 per child per year, an increase from the previous cap of $7613.

Payments will be paid directly to child care providers to pass on to families as fee reductions. Annual lump sum payments will no longer be an option. Five percent of the fortnightly subsidy will be withheld to prevent over-payment – at the end of the financial year the payments will be balanced using your actual income.

How will you fare under the Child Care Subsidy?

How big will your subsidy be?

  • Families earning $66,957 or less will receive a payment equivalent to 85% of their fees.
  • If you earn $66,958–$171,957 will receive a payment that ranges from 85% to 50%.
  • If you earn $171,958–$251,247 will receive a payment equivalent to 50% of their fees.
  • If you earn $251,248–$341,247 will receive a payment that ranges from 50% to 20%.
  • If you earn $341,248–$351,247 will receive a payment equivalent to 20% of their fees.
  • If you earn $351,248 or more you will receive no subsidy.

Income thresholds are for 2018–19

* If your household income is less than $66,958 you receive 24 hours subsidy activity-test-free

How many hours will be subsidised?

If your household income is $66,958 or above and you do fewer than eight hours of approved activity a fortnight you will not receive the subsidy.

If you do eight to 16 hours of approved activity a fortnight you can claim 36 hours of subsidised care.

If you do 16 to 48 hours of approved activity a fortnight you can claim 72 hours of subsidised care.

If you do more than 48 hours of approved activity a fortnight you can claim 100 hours of subsidised care.

For example:

Chloe works full time, and Laura works 40 hours a fortnight. Four-year-old Jack is in long day care for which the hourly rate cap is $11.77. Their combined income is $180,000, so they can receive up to 50% of the rate cap, and they have no annual cap. Laura's 40 hours of activity entitle them to 72 hours of subsidised care. After a five percent withholding is deducted, their provider will be paid up to $402 a fortnight.

For the families we spoke to the actual change in funding has made little difference. Some were very slightly better off – a two percent increase, by their calculations. Others found it tricky to work out when considering the different results for children in different types of care.

For CHOICE's Kate Bower it was the difference in the way child care and out of school hours (OOSH) care are assessed that makes the calculation difficult. "With my daughter in child care I can tell we're better off because they've removed the cap. We're worse off with OOSH because our rebate is lower than it was and we weren't receiving up to the cap, but it's complicated to do the sums," she says.

What does the activity test mean for you?

The new subsidy introduces an activity test, which determines how many hours of care will be subsidised each fortnight. A range of activities will meet the activity test, including paid work, study and training, unpaid work in a family business, looking for work, volunteering and self-employment. In a two-parent family, the person with the lower number of activity hours will determine the relevant level of the activity test. In a sole-parent family, the sole parent must meet the activity test.

Just how many hours are up for grabs? You must do at least eight hours of activity to receive the subsidy. Parents with eight to 16 hours of approved activities per fortnight will be eligible for 36 hours of subsidised care. Those completing more than 16 hours to 48 hours per fortnight will qualify for 72 hours, and those undertaking more than 48 hours will qualify for 100 hours per fortnight. 

Getting active: how will it change things for you?

  • Low-income families on $66,958 or less a year who don't meet the activity test will be able to access 24 hours of subsidised care a fortnight without having to meet the activity test.
  • Stay-at-home parents in a household with a combined income over $66,958 may miss out on receiving any benefit at all – however, there are a range of activities that meet the test, so it's recommended you talk to Centrelink about your circumstances.
  • If you're on Carer Payment, or providing constant care for someone but don't qualify for Carer Payment, you may be exempt from the activity test and be eligible for the full 100 hours a fortnight.
  • If you receive paid or unpaid parental leave from your employer, the amount of hours you worked prior to going on leave will be counted for the purposes of the activity test.
  • If you receive a sickness benefit, this may qualify as meeting the activity test and is determined on a case-by-case basis.

This new activity test has created the most concern for the families we spoke to. 

"Some reform was definitely needed," says Kate. "There were inequities in the system which meant some lower income families found it hard to access the child care they needed, but the fact that there's now an added burden on people to communicate their hours and their income, which there wasn't before, means maybe these changes aren't ideal."

Others are worried that variations in income will create problems. CHOICE's Sarah Davies is parent to a four-year-old boy who attends long day care four days a week. "It's hard to estimate my husband's salary in advance. Hopefully we have over-estimated but there is potential to go very wrong and owe the tax office money at the end of the year."

Further support for disadvantaged families

The Additional Child Care Subsidy is a top-up payment for disadvantaged families. Eligible recipients include children at risk of serious abuse or neglect, grandparent primary carers on income support and families experiencing temporary financial hardship. They will be eligible for a subsidy equal to 100% of the actual fee charged, up to 120% of the hourly rate cap. They can get the full 100 hours of care a fortnight without being subject to an activity test.

In addition, parents transitioning to work from income support can have 95% of their fee subsidised, up to 95% of the hourly rate cap. The activity test applies as normal.

What you need to do to receive the subsidy

Your existing information will not automatically rollover to the new system, so it's important to note if you do not complete the assessment before 2 July 2018, you may not have the subsidy paid in time. If you make a late application, Centrelink will only backdate your subsidy 28 days.

For more information: