Push for mums to receive tax breaks for childcare

A leading tax body is calling for the cost of childcare to be tax deductible, as a way to encourage women to return to the workforce.

The Tax Institute is arguing a tax concession to subsidise the cost of childcare would benefit the Australian economy by generating tax revenue in the form of income tax on wages from the women who return to the workforce.

In a submission to the Productivity Commission’s inquiry into childcare, The Tax Institute states many women who don’t return to work after having children would earn higher wages than childcare workers and therefore the extra tax gained from income tax on wages would more than offset the tax deduction.

“Australian families are increasingly balancing work and family responsibilities and there is a direct relationship between the price of childcare and whether women return to the workforce,” the report said.

“As the price of childcare increases, there is a corresponding decrease in the number of hours that women are in paid employment… Despite the longer term benefits of returning to work, in the short term, the costs of childcare significantly reduce the value of doing so.”

In 2010 the Henry Tax Review recommended that poorer families receive greater government assistance for childcare, but that even wealthy families should get some assistance for pre-school children.

Under the current law a tax deduction is not available for a loss or outgoing of a private nature, regardless of its necessity to earn an income.

The Henry Tax Review found the system “encourages lower income earners back into the workforce”, but assumes higher income earners will return anyway, according to The Tax Institute’s submission.

“Tax deductions should only be available to reduce the tax on income from employment or self-conducted business income so that they are unequivocally tied to enhancing productivity,” the report said.

“That is, there is no point giving a subsidy to reduce the tax on investment income. As such, we do not support subsidising the childcare expenses of a parent who is still at home earning bank interest or share dividends.”

The review into childcare affordability is the first in decades and could see major changes to the tax system.

So far there have been 173 submissions to the Productivity Commission.

A submission made by the Workplace Gender Equality Agency argues women’s accessibility to childcare needs to be improved by extending hours availability to meet today’s workplace standards and the needs of shift workers, increasing the geographical reach of services into regional and remote Australia and amending the rebate system to approve the use of qualified nannies as a form of childcare.

The WGEA also argues work needs to be done to increase the flexibility of the workforce, the affordability of childcare and the quality of care available.

Council of Small Businesses of Australia executive director Peter Strong previously told SmartCompany the government needs to do more to help small businesses provide childcare options for their female employees.

“For a small business, if you give childcare to one of your workers you need to pay fringe benefits tax,” he says.

“There needs to be a lot more support from the government for childcare so women can return to work. By returning to work, many women basically end up just doing work experience because of the high costs.”

Increasing government funding for childcare, Strong says, would help parents and small businesses.

“In a big business, you can stick a crèche in and you don’t have to pay fringe benefit tax, there’s quite a bit of discrimination there since small businesses can’t afford their own crèches,” he says.

“You don’t pay fringe benefits tax for supplying childcare at work and this should extend to small business, even if the childcare is offsite.”


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