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A key principle and requirement under Family Assistance Law is that all parents who receive Child Care Subsidy (CCS) must make a co-contribution to their child care fees by paying the gap fee. The gap fee is the remaining total of the fees, after the CCS amount has been applied.
Where a third party helps a family pay their child care fees, the amount of CCS paid reduces, maintaining a gap fee. However, state and territory governments (and their agencies) can pay some or all of the gap fee, without the CCS payment diminishing, for disadvantaged and vulnerable children. This helps remove barriers to disadvantaged and vulnerable children accessing child care.
The requirement for a parent to make a co-contribution does not apply if the family is eligible for Additional Child Care Subsidy (ACCS) (child wellbeing) or ACCS (grandparent) for the child as this generally covers 100 per cent of the fee charged.
Information for providers
Providers are required to keep and maintain records of any third party payments received and how they are applied.
Child care providers must submit accurate and complete session reports, including the correct fee, for each session of care. The correct fee is essential to work out how much CCS parents are entitled to receive for each session.
Contributions towards fees from state and territory governments
State and territory governments (and their agencies) can contribute to the payment of the gap fee, in part or in full. Payments from state or territory governments, or authorities of state or territory governments, that are made to providers to reduce the child care fee liabilities of disadvantaged and vulnerable families are not required to be deducted from the total fee reported to calculate the CCS.
|Session of care fee||$100|
|Family CCS (85%)||$85|
|Contribution from state or territory government||$15|
In this example, the state and territory government may pay up to $15 and the CCS is not impacted for the family. As the state and territory payments are only covering the gap fees, providers are not required to reduce the actual fee charged to families, before applying CCS. Session reports will remain the same as under normal practice. Providers must ensure they record any payments from state and territory government in the parent’s CWA.
There is no time limit on the exception for this category of payment.
Commonwealth Ministerial rule for Victoria
In January 2021, a Commonwealth Ministerial rule was introduced in support of the COVID-19 recovery that allows the Victorian Government to pay out-of-pocket fees for four-year-old and eligible three-year-old children in state-funded kindergarten programs (i.e. enrolments that attract Victorian Government kindergarten per capita funding).
In this case, the Victorian Government can cover the gap fee and the provider is not required to reduce the actual session fee before applying CCS.
The measure supports Victoria’s Free Kinder initiative, which aims to provide families with free or cheaper kindergarten in 2021.
Providers must keep records of payments and session reports remain the same.
More information on Free Kinder can be found on the Victorian Department of Education and Training website.
Contributions towards fees from other third parties
If a third party (other than state or territory government) pays all or part of the fee for a session of care, this amount must be applied to the fee upfront, with the parent only entitled to CCS in relation to any remaining portion of the fee they are genuinely required to pay. Therefore, where a third party pays any part of the fee for a session of care, the correct fee (i.e. the fee to report in respect of the session) is the remaining amount the parent is required to pay for the session of care after deducting the third party contribution.
Reducing the reported fee
A non-government third party may contribute to part of a family’s fees, reducing the amount parents have to pay, with some gap fee remaining. In this situation, the child care provider will reduce the fee reported to reflect that.
Normally, if parents receive a 60% subsidy for a session that costs $100, parents will need to pay $40 (with the remaining $60 covered by the subsidy).
|Session of care fee||$100|
|Family CCS (60%)||$60|
But if a non-government third party pays the $40, the service must reduce the amount of fees reported. The new reported fee would be $60, and the parent would receive $36 in subsidy (60% of $60). The parent’s gap fee would be reduced and they would be liable to pay $24.
|Session of care fee||$100|
|Third party payment||$40|
|Family CCS (60%)||$36|
The third party can pay all of the family’s child care fees – but in such cases the family is not entitled to CCS. This includes where the individual receives child care as part of an employment package or where an employer is liable for the payment of fees, such as through salary sacrifice.
The third party can provide financial assistance to the family directly for general household expenses. These expenses could include child care costs, however as this support is provided directly to the family it is not considered in the calculation of CCS entitlement.
Third party contributions paid directly to the provider
Providers do not need to reduce fees by the amount of third party contributions provided directly to the provider for any other purpose. For example, providers may receive additional funding to employ more highly qualified staff, enhance their facilities, or otherwise improve the service they deliver. These amounts are not relevant to reporting the correct fee, as the funding is not provided specifically to reduce session fees for parents or individual families.
Information for families in bushfire affected areas and volunteer fire fighters
Further support has been made available to families and volunteer firefighters affected by the 2019/20 bushfires. Third parties, such as state/territory governments and charitable organisations, are able to cover the cost of gap fees for families who live in a bushfire-declared local government area (LGAs) and volunteer firefighters who engaged in bushfire fighting activities, without families’ CCS entitlement being affected.
Who can benefit from this?
- Families in LGAs declared eligible for an Australian Government Disaster Recovery Payment in respect of bushfires. See impacted LGAs at DisasterAssist. This measure is available from 1 December 2019 to the end of November 2020.
- Children of volunteer firefighters who engaged in bushfire fighting activities. Third parties were able to cover the gap fee for care provided between 1 December 2019 to 29 February 2020.
Who can make payments to child care providers to help families with the cost of care?
State or territory governments (or an authority thereof), or a registered charity can make payments to providers to help families with the cost of care.
However, there are two limitations in this measure to charities who can make payments to providers:
- if the charity is also the entity that provided the session of care, or
- if the charity is linked to the child care provider (within the meaning of the Income Tax Assessment Act 1997).
How does this rule work in practice?
Ordinarily where a third party makes a payment specifically to reduce the amount a parent is required to pay for a session of care, the provider must reduce the session fee by the contribution amount to ensure the parent’s CCS, and their co-contribution, are calculated as required by the legislation.
For example, you charge the Brown family a session fee of $100 per day and their CCS entitlement covers $85. The state government has agreed to contribute the remaining $15 to cover the Brown’s gap fees.
Usually, the $15 from the state government would need to be deducted from the $100 before calculating CCS. This would reduce the CCS to $72.25 and leave a $12.75 co-contribution amount to be paid by the Brown family.
However, because the Brown family live in a bushfire-declared LGA, the state government is able to cover the remaining $15, and there is a zero gap amount for the Brown family to pay.
What do child care providers need to do?
Reporting sessions of care
- Providers must continue to report sessions of care and fees as per usual.
- With the exception of families in the relevant bushfire-declared areas (as per DisasterAssist), vulnerable and disadvantaged children being supported state and territory governments and volunteer firefighters, third party payments made must continue to be first deducted from the fee before CCS is calculated.
- Providers must keep records of all payments made by third parties and how they are appropriated to family accounts.
- It is a business decision on how these records are kept.
- Providers may consider speaking to their third party software provider about system support for record keeping in the first instance.
Statements of entitlement
- Providers are required to give a statement of entitlement to families in respect of each CCS fortnight.
- Providers must ensure that statements of entitlement correctly reflect any third party payments made.
- Where third party payments are made in respect of a past period (i.e. December 2019) new statements of entitlement must be issued to the family.