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The bottom line of salary sacrificing child-care costs is that you end up paying only half - if you're on the top tax bracket, that is. If your child goes to a child-care centre costing $70 a day five times a week, your annual bill would be $18,200. Usually that would be paid from your after-tax earnings but by packaging child-care costs so they were paid before tax the bill would be well below $10,000.
The catch is that not all employers can offer this packaging - only those that are exempt from fringe benefits tax because they own or lease the child-care centre, so it's regarded as being on business premises and therefore is work-based child care. After the landmark Esso court case in 1999, it was accepted that companies offering shared child-care facilities that were away from their main business premises were not liable for FBT. Even so, the take-up since then in companies offering their employees work-based child care as a pre-tax benefit has been slow. Companies that do offer this, says James Ward, managing director of Child Care Solutions Australia, include Westpac, MLC, Lend Lease, CSIRO, St George Bank; the Department of Defence and the Australian Taxation Office."It has taken a while to filter through - it has gained a lot more momentum over the last 12 months as companies have taken on board the Esso case and the ATO's public ruling (TR2000/4)," Ward says.
Packaging works well for lower salaries as well. Someone earning $45,000 a year who was able to package child-care costs of $18,000 a year would be better off by $5670 says Ward (see note below). The person on the basic package would earn $34,653 after tax, from which $18,000 child care would have to be paid, which would leave $16,653. Compare this with the person on the child-care package who after tax would be left with $22,323 - the difference is $5670. Using the same method, the $90,000-a-year employee would be better off by $8730 with packaging. The key advantage for companies wanting to offer this, says Ward, is increased staff loyalty, lower staff turnover and reduced recruitment costs.
Note: the figures referred to in this article were correct at the time and have marginally changed due to the impact of the 30% childcare tax rebate.
Packaging can save you a packet
Author: Debra Cleveland
Date: 21/11/2003:
Publication: Financial Review
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