By the Advisory Team at Quantum House Australia | Chartered Accountants & Tax Advisers, Sydney
The childcare sector is one of the most heavily regulated in Australia — and its financial complexity matches its regulatory complexity. From the GST treatment of childcare fees to the impact of Child Care Subsidy (CCS) on cash flow, from the employment of large casual workforces to NDIS funding accounting, childcare centre operators and family day care providers face a distinctive set of accounting and compliance challenges. This article covers the key issues that accountants working in the childcare sector must understand.
GST Treatment of Childcare Services
Childcare services provided by a registered childcare provider are GST-free under the GST Act — meaning that fees charged to families do not include GST. Importantly, because childcare services are GST-free (rather than input taxed), a registered childcare provider is entitled to claim 100% of the GST input tax credits on the expenses it incurs in running its business. GST complexity can still arise if a centre also derives income from supplies that are input taxed — for example, from certain financial arrangements — but this is uncommon in standard childcare operations. Where a centre receives income from straightforwardly taxable supplies (such as the sale of uniforms or after-hours facility hire), it must charge and remit GST on those supplies and ensure they are correctly coded in its accounting system and BAS.
Child Care Subsidy (CCS) and Cash Flow
The Child Care Subsidy is paid by the Australian Government directly to childcare providers on behalf of eligible families. The provider charges the family the full fee and receives the subsidy from the government, collecting only the gap fee from the family. This arrangement creates a distinctive receivables and cash flow profile: revenue is recognised at the full fee, but a significant portion is collected from a government payer on a different schedule to family payments. From 5 January 2026 the CCS activity test is replaced by the ‘3 Day Guarantee’, under which CCS-eligible families are entitled to at least 72 hours (three days) of subsidised care per fortnight regardless of activity — a change that can lift enrolments and alter the subsidy mix providers need to track. Providers must track CCS receivables accurately, reconcile government payments against expected entitlements, and manage cash flow around the gap between fee recognition and subsidy receipt.
Payroll and Employment Compliance
Childcare centres typically employ large numbers of part-time and casual staff — qualified educators, assistants, cooks, and administrative personnel — under the Children’s Services Award or the Educational Services (Teachers) Award. Payroll obligations in this context include minimum hourly rates, allowances (such as meal and first aid allowances), superannuation on all ordinary time earnings, and annual leave loading. Casual staff are entitled to casual loading, and any misclassification of workers (for example, treating permanent part-time staff as casual) creates significant underpayment risk under the Fair Work Act. A further layer is the Government’s Early Childhood Education and Care Worker Retention Payment — a grant funding a wage increase of 15% above the applicable award rate (phased in from December 2024, reaching the full 15% from December 2025) which approved providers must pass on to eligible workers and account for separately, along with the associated on-cost funding.
Inclusion Support Funding and Accounting
Childcare providers who care for children with additional needs or disability can access the Australian Government’s Inclusion Support Program (ISP) — not, as is sometimes assumed, NDIS funding paid to the centre. The ISP’s Inclusion Development Fund can subsidise the cost of an additional educator to raise the educator-to-child ratio, helping a service include children with additional needs alongside their peers. (The NDIS funds a child’s individual supports and therapies directly with the family; mainstream childcare itself sits outside the NDIS.) The accounting for ISP subsidies — recognition timing, and reconciliation against approved support hours — adds a further layer to the provider’s financial records, and approved services must also meet the record-keeping standards attached to the funding.
Capital Investment and Depreciation
Childcare premises, fit-outs, and equipment represent significant capital investments that must be depreciated correctly over their effective lives. Purpose-built childcare centres may also qualify for depreciation deductions on building construction costs under the Div 43 capital works deduction (at 2.5% per year). For new centres or major refurbishments, a depreciation schedule prepared by a quantity surveyor is an important tax planning tool that many childcare operators overlook.
How Quantum House Australia Supports Childcare Operators
Quantum House Australia is a firm of chartered accountants, tax advisers and registered auditors, and we work hand in hand with childcare centre operators and family day care providers across Sydney and beyond. We provide tax compliance, GST and BAS advice, payroll and award support (including the Worker Retention Payment), CCS and Inclusion Support reconciliation, Div 43 depreciation planning, and business performance reviews — all tailored to the childcare sector. Where a matter calls for legal input, our colleagues at Australian Tax Experts, tax advisers and lawyers, can advise alongside us. If you would like a specialist accountant who genuinely understands childcare, contact Quantum House Australia today for a confidential consultation.
Ready to talk? If you would like to discuss any of the topics covered in this article for your business, contact Quantum House today for a confidential consultation. Visit quantumhouse.com.au or call our Sydney office to speak with a senior adviser.