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Determining Child Care Subsidy

The amount of Child Care Subsidy to which a family is entitled is determined by the:

  • family income
  • results of an activity test
  • type of child care service.

There are caps on the hourly rate for which a subsidy will be paid, and in some cases on the total subsidy that will be paid in each financial year.

Withholding part of a payment reduces the likelihood of debt for individuals. An amount of 5 per cent of Child Care Subsidy entitlements is usually withheld from payment, unless an alternative percentage is determined by the department for the individual. At the end of the income year, the amounts paid and withheld will be reconciled.

In exceptional circumstances, a determination can be made that a family should receive more hours of support than the standard entitlement.

It is important that families keep Centrelink informed about any change of family circumstances.

Family income

Family income is the annual adjusted taxable income of the individual and their partner (if they have a partner). It is used to determine the percentage of Child Care Subsidy to which an individual is entitled. For more information, see the Department of Human Services website at www.humanservices.gov.au/individuals/enablers/adjusted-taxable-income.

To calculate the entitlements and payments for each child, the individual will need to provide a reasonable estimate of their annual adjusted taxable income directly to Centrelink. These details will be used, along with the information submitted by the provider in their session reports, for the calculation.

The percentage of subsidy relative to income level is set out in Table A1, for 2020–21.

The lowest income threshold will be indexed by the Consumer Price Index annually, and all other income thresholds will be increased by the same dollar amount to match the rate at which the subsidy gradually decreases.

Table A1: Current levels of family income and the amount of Child Care Subsidy payable as a percentage of the actual fee charged or hourly rate cap, for 2020–21.

Family income

Subsidy per cent of the actual fee charged or hourly rate cap, whichever is lower

Up to $69,390

85 per cent

More than $69,390 to below $174,390

Decreasing to 50 per cent

$174,390 to below $253,680

50 per cent

$253,680 to below $343,680

Decreasing to 20 per cent

$343,680 to below $353,680

20 per cent

$353,680 or more

0 per cent

Activity test

The hours of subsidised child care per fortnight that a family is entitled to is determined by an activity test. Depending on the combined hours of work, training, study, recognised voluntary work or other recognised activity undertaken, a family can receive up to 100 hours of subsidy per fortnight per child. Both the claimant and their partner, if they have one, must satisfy the activity test unless they are exempt. For claimants who are partnered, the number of subsidised hours the family is entitled to will be based on the member of the couple with the lowest activity test result, even when an exemption applies.

The family or individual will provide activity details directly to Centrelink. These details will be used, along with the information submitted by the provider in their session reports and the family’s income, to calculate the entitlements and payments for each child.

Table A2: Hours of activity and maximum number of hours of Child Care Subsidy (per fortnight) per child

Hours of activity (per fortnight)

Maximum number of hours of subsidy (per fortnight) per child

For families earning up to $69,390

Fewer than 8 hours

24 hours

For families earning up to $353,680

8–16 hours

36 hours

More than 16 up to 48 hours

72 hours

More than 48 hours

100 hours

A broad range of activities meet the activity test requirements, including paid work, self-employment, unpaid work in a family business, looking for work, and recognised volunteering or studying. Travel time from the child care service to your place of activity and back to the child care service can be included (but not between home and the child care). There are exemptions to the activity test for parents who legitimately cannot meet the activity requirements.

Low-income families on combined family incomes of $69,390 or less a year who do not meet the activity test can access 24 hours of subsidised care per fortnight under the Child Care Safety Net.

Families who do not meet the activity test but have a preschool-age child attending preschool in a Centre Based Day Care service will be eligible for 36 hours of subsidised care per fortnight.

People with disability or impairment, including those who receive Disability Support Pension or an invalidity service pension or who have been diagnosed by a registered medical practitioner or clinical psychologist as impaired to a significant degree may be exempt from the activity test.

Families who need more than their available hours of subsidised care per fortnight due to exceptional circumstances can apply to Centrelink for additional hours.

Information for families

For more details about how the activity test is applied, including activities that can meet the activity test and exemptions, see the Department of Human Services website at www.humanservices.gov.au/individuals/services/centrelink/child-care-subsidy/how-much-can-you-get/your-activity-level-affects-it.

Activity test for preschool program attendance

The preschool category provides families who do not meet the activity test with up to 36 hours of subsidised care per fortnight to support their preschool-age child to attend a preschool program in a child care service.

Families who meet the activity test and engage in more than 16 hours of recognised activities will result in being eligible for a higher number of subsidised care hours per fortnight, in accordance with Table A2 above.

As for all calculations of Child Care Subsidy, where a service indicates that a session provided by a Centre Based Day Care service was part of a preschool program, the subsidy will be calculated based on the sessions of care provided to the child. For example, where a parent is eligible for subsidised hours under the preschool category (as they do not meet the activity test) and the child attended any part of a 10-hour session, Child Care Subsidy will be calculated for 10 hours. This would reduce the parent’s balance of subsidised hours to 26 hours from their total of 36 for the fortnight.

While the maximum length for a single session of care under Family Assistance Law is 12 hours, providers have flexibility in the hours per day and days per week that they operate. Providers are required to notify the Department of Education within 14 days of any change in its operating hours.

Child care providers should consider changes that deliver flexible, cost-effective care and learning services for families. For example, providers could choose to offer parents receiving 36 hours of subsidy under the preschool category six sessions of six hours or four sessions of nine hours per fortnight.

For the Child Care Subsidy preschool category, a preschool-age child is a child in the year before their first year of primary school. States and territories refer to the first year of primary school differently (see the Department of Human Services website at www.humanservices.gov.au/individuals/enablers/what-are-primary-school-levels-child-care-fee-assistance/40326).

To establish when children are preschool age for Child Care Subsidy purposes, parents indicate their child’s expected school (that is, primary school) start date in their Child Care Subsidy claim or when they later update their details with Centrelink. For example, if a parent indicates their child will start school in February 2020, the child is a preschool-age child for 2020.

Families who receive Child Care Subsidy are required to report changes of circumstance that affect their entitlement to Centrelink as soon as practicable.

This means that, at any stage throughout the year, if a parent who is accessing the preschool exemption decides that their child is not ready to start school the following year, they must update their child’s expected school start date with Centrelink.

This will cease the family’s entitlement to the preschool category of 36 hours of subsidised care from that point, if their child will no longer be in the year before the first year of primary school.

The family may be entitled to the preschool category again once their child is in the year before their first year of primary school.

Caps

Hourly rate caps

Hourly rate caps are the upper limit on the amount the Australian Government will subsidise care provided at an approved child care service. The hourly rate caps vary across service types to reflect differences in operating costs and average fees charged.

Combined with the family’s Child Care Subsidy percentage, the rate caps will be used to calculate the amount of subsidy per hour each family is entitled to receive:

  • Where a provider charges less than the hourly cap, families will receive their applicable percentage of the actual fee charged.
  • Where a provider charges more than the hourly cap, families will receive their applicable percentage of the hourly rate cap.

The family’s out-of-pocket expenses will be the difference between the subsidy to which they are entitled (based on their income and activity levels) and the total fees charged by the provider. The caps will be indexed annually in line with the Consumer Price Index and published on the Department of Education website.

The Australian Government does not set child care fees—providers set their fees and parents pay the gap between the subsidy and the actual fee. Providers are obligated to take all reasonable steps to ensure that parents pay the gap fee.

The hourly rate caps serve as a guide to providers and families on the maximum hourly amount that the Australian Government is prepared to subsidise. The hourly rate caps are shown in Table A3.

Table A3: Hourly rate caps payable for children below school age and of school age, according to the type of child care service provided, for 2019–20

Service type

Hourly rate cap (children below school age)

Hourly rate cap (school-age children)

Centre Based Day Care

$12.20

$10.67

Outside School Hours Care

$12.20

$10.67

Family Day Care

$11.30

$11.30

In Home Care

$33.17 (per family)

$33.17 (per family)

Annual subsidy cap

Families with an adjusted taxable income of $189,390 or less have no annual cap on the subsidy they can receive. For families with income of more than $189,390 to less than $353,680, the annual subsidy cap is $10,560 per child, per year (indexed by the Consumer Price Index annually). Families with income of $353,680 or more cannot receive Child Care Subsidy.

Families can monitor their progress towards the annual subsidy cap through their Centrelink online account.

The Department of Human Services will notify the provider through their child care software or the PEP if a family whose child is enrolled at a service has reached their annual subsidy cap. There will be no fee reduction amounts paid to the provider or parent for that child from that time forward (for the remainder of the financial year), and the parent will have to pay the full fees charged.

Withholding of payments

The amount that a provider will be paid, and that the individual will receive in the form of fee reductions, will be 5 per cent less than the individual’s Child Care Subsidy entitlement.

Withholding some of a family’s entitlement to Child Care Subsidy is a way to reduce the likelihood of families incurring a debt at the end of a financial year. The process of withholding does not reduce a family’s overall entitlement to Child Care Subsidy.

Some parents may have their withholding percentage varied from the default amount of 5 per cent. Providers will be able to see the amount withheld on the payment advice they receive each fortnight.

At the end of the financial year, after the individual and partner (if any) have lodged their tax return, the amounts paid to and withheld from the individual will be reconciled. A review of the individual’s entitlement will be conducted based on the individual’s actual adjusted taxable income.

Where, because of the review, it becomes clear that there was overpayment (for instance, because the person underestimated their income), the overpayment is recoverable as a debt by deducting from the amounts withheld.

Where, because of the review, it becomes clear that there was an underpayment (for instance, because the person overestimated their income), the individual will be paid the amounts withheld and any additional amount as a lump sum.

Family circumstances

Exceptional circumstances

In exceptional circumstances, variations may be made to eligibility requirements, such as residency requirements, or to other conditions of Child Care Subsidy. These will be determined on a case-by-case basis. Families who are in, or have children in, circumstances that may be exceptional should contact Centrelink.

Change of family circumstances

The provider will receive notification of each individual’s entitlement information once the individual has confirmed their enrolment notice. This information is viewable through the provider’s child care software or the PEP. This information will include details of:

  • the individual’s Child Care Subsidy percentage
  • the number of subsidised hours per fortnight (the family’s activity test result)
  • the individual’s apportioned hours (where the child attends more than one service and the individual has chosen to apportion a certain number of their subsidised hours to each service)
  • the Additional Child Care Subsidy percentage (if applicable)
  • whether the family has reached the Child Care Subsidy annual subsidy cap
  • the number of absences the child has used in the current financial year.

When a family’s circumstances change and this affects their eligibility and/or entitlement, they are required to notify Centrelink of the change as soon as possible. The provider will be able to see any change to the family’s entitlement through their child care software or the PEP.

Changes to a family’s entitlement will take place from the beginning of the next Child Care Subsidy fortnight after the change occurred. Where a parent is late in reporting a change in their circumstances resulting in an overpayment of Child Care Subsidy for previous sessions of care, a debt may be raised (this may affect their subsequent Child Care Subsidy payments). Parents will be notified through their Centrelink online account where Centrelink raises debts due to changes in their entitlement—for example, changes to an individual's (and any partner's) activity test result.

Where a parent is unsure about the details of a debt raised by Centrelink, they will need to log into their Centrelink online account for further details or raise their questions with Centrelink.

Providers should encourage families to keep their income and activity estimates updated with Centrelink to help them reduce the risk of debt throughout the year and at reconciliation.

Grandparent carers

Grandparent principal carers not on income support may be eligible for Child Care Subsidy. These grandparents will be entitled to 100 hours of subsidised child care per fortnight regardless of their activity, with the rate of subsidy based on their, or any partner’s, income.

Grandparents who are not principal carers of their grandchildren but have regular or shared care of the child may be eligible for Child Care Subsidy based on their income and hours of recognised activity.

If those grandparents do not meet the Child Care Subsidy activity test and earn less than $69,390, they will be able to access 24 hours of subsidised care per fortnight at 85 per cent of the hourly rate cap.

Grandparent principal carers who are on income support will be supported through Additional Child Care Subsidy (grandparent). For further information see Appendix B.