How to navigate the Child care subsidy & family tax benefits

It’s coming up to that time of year where Centrelink will be balancing child care subsidy and family tax benefit payments.

I’ve heard so many stories from other mums in previous years about needing to pay back the benefits received and it comes as a real blow, so I’ve provided a bit of an overview on the payments, how they work and what you can do to keep on top of them.

Child care subsidy:

I’m a financial adviser, and a mother to two toddlers, and I feel like trying to navigate this topic is one of the more challenging ones!

Not only do new parents go through emotional turmoil in returning to work but then they are presented with the difficulty of navigating the child care subsidy and working out what it’s actually going to cost them. 

Most centres will guide you through the process and have some information to help support you in working out the costs and there is a wealth of information on the Services Australia website.

But the other thing to keep on top of is ensuring you are getting the correct level of subsidy throughout the year and not on the other end of an unpleasant surprise come tax time when your payments are balanced.

 

3 variables that determine your level of child care subsidy:

  • Your combined family income
  • The ‘activity’ hours you and your partner do
  • What type of child are service you use and the cost of the fees

Your level of income will determine the percentage of subsidy you are entitled to. 

Your activity level is an hourly factor and is most simply determined by your work hours – or if you are studying, or in a caring role this can also translate into activity hours. 

These hours dictate how many hours of subsidised care you might be entitled to.

4 types of approved child care you can use for subsidies:

  • Centre-based day care
  • Family day care
  • Outside school hours care
  • In-home care

All of these services have a different hourly ‘cap’ rate.

So once your % of the subsidy is worked out, then this will apply to the lower of:

  • Hourly fee charged by your centre
  • Hourly rate cap

And you can get the subsidy for the amount of hours per week you are entitled to according to your ‘activity level’.

Generally most centres will help you navigate this, but once your subsidy has been determined, that’s not the end of it. 

The subsidy you received and your entitlement is ‘balanced’ every year.

Balancing child care subsidy payments

Your subsidy payments are based on the estimates that you provide Centrelink and then they are ‘balanced’ with records from the ATO based on your actual income when it comes to tax time. 

So it pays to keep your information up to date to avoid an overpayment or underpayment.  The balancing exercise starts in mid-August.

Centrelink do hold back 5% of your estimated entitlement as a buffer.

How to prepare as best as possible for child care subsidies:

There’s a wealth of information on the Services Australia website and plenty of elements you need to sift through. 

But I could impart a message on you, it would be this – get on the front foot and keep your details up to date!!! 

When you are providing your estimates for the 12 months ahead, take a conservative approach and factor in if you think you or your partner might be entitled to a pay rise or if you might change your hours for example. 

And before the end of the financial year, update your estimates for the year ahead so that you can be confident the payments will be correct for the year ahead.

How to calculate your family tax benefit: 

The Family Tax Benefits can also be quite complex to understand the calculations.

Put simply:

  • FTB A is paid per child and based on a family’s circumstances (the age of your child, the % of time they are in your care and your income)
  • FTB B – is paid per family and is also circumstance-based

Both payments are income based and FTB B is more designed to support families where there is one main income earner.

You can choose how you are paid FTB:

  • If you are likely to be entitled, you can take your benefits as a fortnightly option or a lump sum option at the end of the financial year.
  • If you opt for the ‘lump sum’ payment you must submit a claim to Centrelink by June 30 of the financial year following the year in which you expected to receive payment. 
  • If you opt for a fortnightly payment you can estimate your income at the start of the financial year.

If you opt for the fortnightly payment of FTB:

  • Be as accurate as you can in your estimates to avoid an overpayment and the need to repay.
  • In both cases, it pays to lodge your tax return as soon as possible after the end of the financial year so that your payments can be balanced correctly.
  • If you don’t get your income right and have underestimated it, that’s where you could be in for a rude surprise come tax time. 
  • Your payments get balanced at the time you lodge your tax return (and no, delaying the lodgement of it won’t help your cause).

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Money Mode Advice Pty Ltd (ABN 29 627 492 791) is a corporate authorised representative of First Financial Pty Ltd (AFSL 481098, ABN 15 167 177 817)

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This presentation provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Renae Vercoe
administrator
Founder of Money Mode, financial professional, passionate educator, partner, mum and financial freedom fighter!