Financial Advisors for Commercial Excellence

Archived News - 2006

2006-03-05
Child Care rebate Becomes Reality

The rebate is designed to cover 30 per cent of out-of-pocket expenses, that is, fees paid for approved care less Child Care Benefit ("CCB"), for taxpayers who receives CCB and meet the CCB work/study/training test.

How does the rebate work?

You will need to keep receipts or similar records for approved childcare expenses that you incur throughout the income tax year (starting 1 July 2004).

Changes to your CCB entitlement after the end of the income year will affect your out-of-pocket expenses. You will need to keep the letter sent to you by the Family Assistance Office ("FAO") confirming your annual CCB entitlement.

If you are eligible you can start to claim the rebate in your income tax return for the year ended 30 June 2006. In this return, you are able to claim for out-of-pocket expenses you incurred from 1 July 2004 to 30 June 2005.

It should be noted that the rebate is a non-refundable tax offset (unlike the baby bonus), which can only reduce your tax liability to nil. You cannot get any of the excess rebate refunded to you.

However, any excess rebate can be transferred to your spouse, as at 30 June of the year in which the rebate is claimed.

Are you eligible?

To claim the rebate, you must:

You should note that if you salary sacrifice your child care fees you will not be able to claim the rebate.

For further information about receiving a CCB you should visit the Family Assistance Office website at www.familyassist.gov.au.

How is the rebate calculated? The rebate is 30 per cent of your out-of-pocket expenses up to $4,000 per child. Out of pocket expenses are total childcare fees for approved care, less actual CCB entitlements.

Example

Sue and Brendan both work (Sue works part-time and Brendan works full-time) and they have one child Rebecca. From 1 July 2004 Sue put Rebecca into approved childcare for three days a week for 40 weeks of the year. The cost of the childcare was $150 for the three days. The total cost for the year was $6,000 ($150 x 40 weeks).

Sue claimed CCB for 2004-05 as a lump sum in July 2005 and her entitlement was determined by the Family Assistance Office to be $2,000. Sue's entitlement to CCB has a 50 hour limit per week as both Sue and Brendan are working hence satisfy the childcare benefit work/training/study test.

Sue's entitlement to the childcare tax offset for Rebecca is 30 per cent of her out-of-pocket expenses up to a maximum of $4,000. That is, 30 per cent of her approved childcare fees less childcare benefit she received for the period. For the 2004-05 year this was:

30% x ($6,000 - $2,000) = $1,200

Sue claims $1,200 childcare tax offset in her 2005-06 tax return. If Sue has an excess amount of tax offset she is able to transfer this to Brendan to offset against his tax liability in the same year.

Other Family Rebates and Tax Offsets

Nowadays there are several tax concessions available for families, which you should make sure you make the most of.

A few are summarised below:

Former Baby Bonus
this is a refundable tax offset, which means it is refundable and not limited to the amount of tax otherwise payable. You are not required to have received any income during the income year or to lodge a tax return. The baby bonus is available to Australian residents in respect of their first child born, or for whom they otherwise obtain legal responsibility on or after 1 July 2001 and before 1 July 2004. The object of the bonus is to repay (up to a limit) tax paid by a person who has suffered a reduction in taxable income after giving birth to, or otherwise obtaining legal responsibility for a child. This bonus has now been replaced by a tax exempt maturity payment.
Medical expenses rebate
taxpayers sometimes overlook this rebate, but you would be surprised how much a family actually spends on medicines and doctors bills during a year, particularly when someone has fallen ill or needed dental work that year. You should keep in mind that either spouse could claim the medical expenses rebate for the whole family, thus maximising eligibility for the rebate. The rebate is equal to 20% of the excess over $1,500 of net medical expenses (that is, after offsetting any amounts received from Medicare or private health insurance).
Family Tax Benefit
designed to help with the cost of raising children. To be eligible you need to be an Australian resident, provide care for a dependent child or student and your family income does not exceed the thresholds. There is a Part A and Part B family benefit which you can be eligible for either or both depending upon your circumstances.

Should you require any further information or assistance in relation to the above please do not hesitate in contacting either Michelle Pearce on (02) 9555 1309 or Kathryn Norris on (02) 9555 7739.

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