In relation to calls for tax deductibility for out-of-pocket childcare expenses, the draft report indicated concerns that this could give rise to other expenses, previously considered to be of a private and domestic nature, to be an allowable deduction, which would narrow the income tax base. It also indicated that the deduction would provide relatively higher benefits for higher income earners. Overall, the draft report does not support tax deductibility as a funding model for childcare assistance.
In line with the broad level recommendations of the Productivity Commission’s 2010 study into the contribution of the not-for-profit sector, the draft report recommended the government should remove eligibility of not-for-profit ECEC providers to FBT exemptions and rebates.
State and territory governments should remove eligibility of all NFP childcare providers to payroll tax exemptions, the draft report said. If governments choose to retain some assistance, it said eligibility for a payroll tax exemption should be restricted to childcare activities where it can be clearly demonstrated that the activity would otherwise be unviable and the provider has no potential commercial competitors.
In relation to employer-provided childcare and FBT, the draft report referred to “evidence” suggesting that the current employer-provided FBT exemption scheme was not widely used. It also noted calls for FBT exemptions to be extended to any childcare services purchased by an employer.
The draft report recommended government remove from the FBT law the provisions regarding eligibility for FBT concessions for employer-provided childcare services but retain the provisions that enable businesses to purchase access rights for children of their employees without this being considered expenditure subject to FBT.
The draft report also recommended payment of a portion of Family Tax Benefit Part A to the parent or carer of a preschool aged child should be linked to attendance in a preschool program, where one is available.
Comments on the draft report are due by 5 September 2014. Clearly there will be much discussion on the report’s recommendations and the government’s views on the suggested tax changes will be interesting. The commission’s final report will be keenly awaited by all concerned.
Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.
Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.
