Salary Sacrificing Childcare in Australia: How It Works

Why it usually does not work🔗

Salary sacrifice only saves you money when the benefit is FBT-exempt or FBT-rebatable. Childcare fees paid to an external centre are generally neither. Fringe Benefits Tax runs at 47% on the grossed-up value of a benefit. When your employer pays your childcare fees under a sacrifice arrangement, the ATO treats that as a fringe benefit and your employer becomes liable for the FBT.

In practice employers do not absorb that cost. They pass it back to you, so your income tax saving gets wiped out by the FBT. For most private-sector employees at an external centre, the net result is no meaningful tax saving, added complexity, and possibly a smaller Child Care Subsidy. The ATO's guidance on FBT and childcare confirms employer-provided childcare is generally taxable, with a narrow exemption only for on-premises care.

When salary sacrifice CAN work🔗

There are three situations where the numbers land in your favour:

• On-site workplace childcare (FBT-exempt). Under section 47(2) of the FBTAA 1986, childcare on your employer's own business premises is exempt from FBT, so the sacrifice genuinely cuts your taxable income. The catch: it is rare, limited to large employers (some hospitals, universities, and major corporates) that run their own centre. A nearby centre with a corporate discount does not count.
• FBT-exempt employers. Staff of public and not-for-profit hospitals, public ambulance services, and registered charities (PBIs) can package childcare within their cap: roughly $9,010 of actual value a year for hospitals and ambulance services, and about $15,900 for PBIs and health promotion charities. Confirm the figures with your packaging provider.
• FBT-rebatable employers. Some other not-for-profits get a rebate on FBT rather than a full exemption, so the benefit is partial, reduced but not eliminated.

Which situation are you in?🔗

A worked example: the nurse vs the marketing manager🔗

Two people, same $95,000 salary, very different outcomes when they each package $9,010 of childcare.

Priya packages $9,010 within her FBT-exempt cap. With no FBT, the whole amount comes from pre-tax salary, and at her 34.5% marginal rate that saves about $3,108 a year. The arrangement works. Marcus asks his private employer to sacrifice the same $9,010 to an external centre. The employer faces FBT of roughly 47% x $9,010 x 1.8868, about $7,995, and passes it back. Marcus saves about $3,108 in income tax but wears about $7,995 in FBT, leaving him around $4,887 worse off. These are illustrative figures only; your outcome depends on your rate and your employer's arrangements.

What actually saves families money: the Child Care Subsidy🔗

For the vast majority of families, the Child Care Subsidy (CCS) is the primary and most effective way to cut childcare costs. It is paid directly to your provider, reducing your out-of-pocket fees automatically, and the rate depends on your family income.

The subsidy applies to your hourly fee or the relevant hourly rate cap, whichever is lower (the centre-based day care cap is $14.63 an hour for children below school age in 2025-26). Families with more than one child aged 5 or under may get a higher rate on younger children. Our Child Care Subsidy guide and the real cost of childcare walk through the numbers.

The CCS catch salary packagers miss🔗

Here is the trap that catches nurses, social workers, and others in the not-for-profit sector who do package. Reportable fringe benefits amounts are included in your adjusted taxable income, which is used to assess your CCS (and Family Tax Benefit). Adjusted taxable income is a broader measure than your taxable income.

See our Family Tax Benefit guide for how adjusted taxable income flows through family payments.

What to do instead: a practical checklist🔗

1. Claim your Child Care Subsidy through myGov and Services Australia if you have not already. This is the single biggest lever for most families.
2. Check your activity test hours, since your subsidised hours depend on the recognised work, study or volunteering you and your partner do each fortnight.
3. If you work for a hospital, ambulance service or charity, ask your packaging provider whether childcare fits inside your cap.
4. If your employer runs an on-site centre, ask HR whether the fees can be sacrificed under the FBT exemption.
5. Do not assume any arrangement saves money without written confirmation and, ideally, advice from a registered tax agent.
6. Consider other sacrifice options that genuinely reduce tax without the FBT drama, such as extra super contributions.

Frequently asked questions🔗

Sources🔗

1. ATO, FBT on childcare
2. ATO, reportable fringe benefits
3. Services Australia, Child Care Subsidy
4. Services Australia, how much Child Care Subsidy you can get

General information only, not personal financial or tax advice. Rules around FBT, salary packaging and the Child Care Subsidy are complex and change regularly. Check current ATO and Services Australia guidance and consider a registered tax agent for your situation.