You Talk – pros and cons of packaging childcare

Brooke asks: I have the option to package childcare through my employer or pay for it at an approved centre. What are the pros and cons?

Hi Brooke.

If you send your child to approved care, the Government will generally pay or reimburse you for at least 50% of up to $15,000 in fees through the Child Care Benefit and/or Child Care Rebate.

Conversely, if the employer provided child care is located on the business premises, you can pay the cost of care from your pre-tax salary and income tax and fringe benefits tax will generally not be payable.

Financially, the best option for you will depend on:

  • the marginal tax rate you pay on your income

  • the daily fee each centre charges, and

  • the number of days care is required..

As a rule of thumb, approved care will be more cost-effective at all marginal tax rates, so long as the daily fee is the same (or similar) to the employer provided centre and the total fees paid are less than $15,000 pa.

However, employer provided care could be more cost-effective if the total fees payable exceed $15,000 pa for your child and you pay tax at a high marginal rate. It could also be attractive if you pay tax at the top rate of 46.5% and the fees are less at the employer provided centre.

You should do your sums to see which will cost you less. But make sure you also consider other factors such as location, convenience and reputation.

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