Username:
Password:
Forgot Password?

Deductability of childcare will encourage mothers into the workforce
Print this Article Print this Article
Email this Article

17 July 2006 
 
The Institute of Chartered Accountants is urging the Federal Government to widen tax breaks for the childcare costs incurred by employers who provide access to childcare and working parents, explaining that the tight rules are exacerbating the current skills shortage in the accounting and other professions.  
 
The Institute’s survey of 401 West Australians* has revealed that a staggering 83 per cent of working parents surveyed supported the notion of the deductibility of childcare expenses and 80 per cent supported the treatment of child care expenses as a non-taxable benefit when provided by an employer.  
 
Two thirds (66 per cent) of respondents supported the notion of extending childcare rebates to cover the cost of nannies, which for working parents with more than one child in childcare can be a viable alternative.  
 
And with more than one in three of working parents surveyed indicating they would either take up part-time work, or increase their part-time hours if childcare was more affordable as a result of tax based solutions, the case will continue to mount for the Government to review tax based incentives for working parents paying for childcare.  
 
The Institute’s WA General Manager, Con Abbott, said that businesses wanting to recruit and retain talented staff need to evaluate their workplace practices and adapt to new policies including greater workplace flexibility, but more still needs to be done by the Federal Government in the area of childcare tax exemptions.  
 
“In the current tight labour market in Western Australia, maximising the participation rate of skilled employees in the workforce is a priority and given the nation’s concerns about an aging workforce, changing workplace expectations, increased globalisation and the retention of skilled immigrants, the Government needs reduce tax disincentive for individuals to re-enter the workforce after having children,” Mr Abbott said.  
 
“While the Institute welcomes the government’s commitment to create an additional 25,000 childcare places in its May Budget, more still needs to be done with tax-based solutions that will give more working parents the choice of returning to the workforce,” he said.  
 
The Institute’s recommendations include:  

  • Childcare expenses should be made deductible for tax purposes to the primary carer of the child where the expenses relate to deriving an income.
    •  
  • Refocusing the availability of the 30 per cent rebate so that is available to the primary care giver.
    •  
  • Changing the Fringe Benefits Tax (FBT) treatment of childcare to enable employees to salary package childcare costs where the primary care giver is working by removing the requirement for childcare to be provided on business premises and extending the FBT exemption to reimbursements of employee expenditure.
 
“The Government has so far focused on immigration to alleviate the pressure of the skills shortage, but more needs to be done and working parents re-entering the workforce is part of the solution,” he said.  
 
Mr Abbott said that the Commonwealth Budget is in substantial surplus, most recent tax reforms are now well entrenched and the Government has given simplification to the system a high priority. In the context of this environment and the Government’s commitment to family values, there is an excellent business and social case for the tax deductibility for childcare.  
 
“Across Australia, it costs families on average between $40 and $100 a day to place youngsters in childcare, a tax-based solution and a push for greater workplace flexibility will encourage parents back into the workforce and effectively work to counteract the skills drain in Australia,” Mr Abbott said. 
 
*The state wide survey of 401 working parents was conducted by Patterson Research to ascertain the affordability of childcare and the response to tax based solutions to improve affordability.  
 
Notes  
 
Under the current scheme:  
  • The Child Care Cash Benefit is means tested and provides families on low incomes with up to $30 per day to cover the cost of childcare in approved childcare centres. A reduced subsidy of $5 per day is available for high-income families and registered childcare.
    •  
  • An income tax rebate of 30% (to a maximum of $4,000 per child each year) is available is available.
    •  
  • Childcare provided on employer premises is exempt from FBT, while reimbursements incurred by and employee or costs for childcare incurred as a result of salary sacrifice are still subject to FBT.