Childcare centres are among the more technically demanding bookkeeping clients in practice. The GST exemption for childcare services reduces input tax credit entitlements in ways that are not immediately obvious. Government subsidies arrive from Services Australia on a schedule that does not align with fee invoicing. Staff costs dominate the cost structure. And management metrics — cost per child per day, occupancy rate, subsidy dependency ratio — require a chart of accounts that produces meaningful numbers, not just tax-compliant ones.
GST-Exempt Childcare Services
The provision of childcare by a registered childcare centre is a GST-free supply under section 38-145 of the A New Tax System (Goods and Services Tax) Act 1999. This applies to care provided by a centre-based long day care service, family day care, or out-of-school-hours care where the centre holds the appropriate approval under the National Quality Framework.
GST-free is not the same as input-taxed. The distinction matters enormously for input tax credit claims. For a GST-free supply, the supplier can still claim input tax credits on acquisitions related to making that supply. So a childcare centre that purchases food, cleaning supplies, educational materials, and building maintenance services can claim the GST on those purchases — even though its fee income is GST-free and carries no GST to remit. The centre's BAS will typically show zero at 1A (GST on sales) but a credit balance at 1B (GST on purchases), resulting in a net GST refund from the ATO each quarter.
An input-taxed supply — residential rent, for example — works differently: the supplier cannot claim input tax credits on acquisitions related to making that supply. If a childcare centre also provides some input-taxed services (unusual but possible), it must apportion its input tax credits between creditable and non-creditable purposes.
For most standalone childcare centres whose only supply is childcare, the GST treatment is straightforward: all income is GST-free, all GST-bearing operating costs generate full input tax credits, and the quarterly BAS produces a refund.
Child Care Subsidy: How to Record CCS Payments
The Child Care Subsidy (CCS) is administered by Services Australia and is the primary government funding mechanism for Australian childcare. Under the current system, Services Australia pays the subsidy directly to the approved childcare provider, not to the parent. The parent pays only the gap fee — the difference between the fee charged and the subsidy.
From a bookkeeping perspective, the income for the centre is the total fee charged (i.e., the full rate before subsidy), and the CCS receipt from Services Australia represents a portion of that fee paid by the government on the parent's behalf.
The correct revenue recognition approach:
When a session of care is delivered:
- Debit Accounts Receivable — Parent (gap fee amount) $X
- Debit Accounts Receivable — Services Australia (CCS component) $Y
- Credit Childcare Fee Income $(X + Y)
When Services Australia pays:
- Debit Bank $Y
- Credit Accounts Receivable — Services Australia $Y
When the parent pays the gap fee:
- Debit Bank $X
- Credit Accounts Receivable — Parent $X
A common error is recording only the gap fee as revenue and treating CCS receipts as a government grant or subsidy income. This understates fee income and misrepresents the centre's operational scale. The full fee is the revenue; the CCS is simply a third-party payer settling part of the receivable.
CCS amounts can vary week to week as families' activity test results and income estimates change. Services Australia reconciles actual entitlements against estimated payments at year-end (the "balancing" process), which can result in clawbacks from the provider or additional payments. When a clawback occurs, it is recorded as a reduction of income (debit Childcare Fee Income, credit Accounts Receivable — Services Australia or Bank, depending on timing).
Gap Fee Income and Parent Billing
Gap fee income is the parent's out-of-pocket component after CCS. For a full-time long day care place at $150 per day where the CCS rate is $110, the gap fee is $40. The parent's statement should show the full fee and the subsidy deducted, with the gap as the amount owing.
Some centres also charge additional fees that are not eligible for CCS — excursion fees, late pickup fees, resource fees — which are billed entirely to the parent. These should be coded separately in the chart of accounts to allow management to distinguish core care income from ancillary fee income.
Staff Costs: The Dominant Cost Driver
Qualified educator ratios mandated by the National Quality Standard mean that staffing cannot be reduced below legislated minimums without regulatory consequence. In practice, direct employee costs — wages, superannuation at 11.5% (from 1 July 2024), payroll tax (where applicable), workers compensation insurance — typically represent 60 to 70% of operating revenue for a centre operating at normal occupancy.
PAYG withholding for childcare centres follows the standard employer obligations. Superannuation guarantee contributions must be paid quarterly to a complying fund by the 28th of the month following each quarter (28 October, 28 January, 28 April, 28 July). Late super contributions lose their tax deductibility and attract the Superannuation Guarantee Charge, payable to the ATO — not the fund — with an additional administration component.
For payroll in a multi-room centre, cost coding by room is useful for management reporting. An infant room with a 1:4 ratio is inherently more labour-intensive per child than a preschool room with a 1:11 ratio. Coding payroll costs by room — debit Wages Expense — Infants Room, debit Wages Expense — Toddler Room, etc. — allows management to calculate a per-room staff cost, which is the first step in understanding per-child profitability.
Cost Per Child Per Day: The Management Metric That Matters
The key operational metric in childcare is cost per child per day (or equivalently, per occupied place per day). It answers the question: what does it cost us to provide one day of care, and are we pricing above or below that?
To calculate it, total operating costs (excluding capital items) for a period are divided by the number of occupied child-days in that period. A centre with $150,000 in monthly costs and 3,000 occupied child-days has a cost per child per day of $50. If the daily fee is $150 and the CCS reduces the parent's contribution to $40, the centre is receiving $150 per day in total (gap + CCS) against a cost of $50 — a reasonable margin, subject to occupancy risk.
This metric requires that the chart of accounts be structured so that total operating costs are readily extractable and that occupied child-days can be derived from the enrolment system or attendance records. A chart of accounts that conflates capital expenditure with operating costs, or that buries depreciation inside a miscellaneous expense account, will produce a misleading cost-per-child figure.
Chart of Accounts Recommendations
A well-structured childcare chart of accounts separates revenue into Childcare Fee Income (total before CCS), CCS Receivable (balance sheet, not income), and Ancillary Fees. On the cost side, direct care costs (wages, superannuation, workers compensation, agency staff) should be separated from indirect costs (administration, marketing, utilities, rent, insurance) to allow gross margin analysis at the care delivery level. Depreciation of equipment and fit-out should be a separate line, not buried in repairs and maintenance.
If the centre operates multiple rooms or age groups, a department or class dimension in the accounting software allows cost allocation by room without multiplying the chart of accounts. Xero's tracking categories and MYOB's cost centres both serve this purpose effectively.