Salary sacrifice lowers your tax. It does not lower the income Centrelink uses for Child Care Subsidy (CCS). That is easy to miss, because the payslip and the tax return both show a smaller number. The CCS income test looks past that smaller number and adds the sacrificed amount back.
This guide covers how that works, which kinds of salary sacrifice count, and what it means for the income estimate you give Centrelink. Every rule here is the one our adjusted taxable income calculator (for members) applies, checked against the DSS Family Assistance Guide (section 3.2 for adjusted taxable income, and section 3.2.3 for fringe benefits) and Services Australia.
The income CCS actually tests
CCS is not income-tested on your salary or your taxable income. It is tested on adjusted taxable income (ATI) for the financial year. For a couple, it is both partners' ATI added together.
ATI starts with taxable income and then adds some things back:
- Reportable super contributions — salary-sacrificed super, plus personal super contributions you claim as a tax deduction
- Reportable fringe benefits — the grossed-up value of reportable benefits on your income statement
- Tax-free pensions and benefits, tax-free foreign income, and net investment losses (rental and financial)
- Less any child support you pay
The full list, line by line, is in our guide to adjusted taxable income (ATI).
Salary sacrifice into super: one line down, another line up
When you salary sacrifice into super, your taxable income drops by the amount you sacrifice. ATI then adds the same amount back as a reportable super contribution. The two cancel out, so for CCS purposes your income is the same as if you had taken that money as salary.
Two things follow from that:
- It will not move your CCS rate up. Salary sacrifice is sometimes described as a way to "get under" a CCS threshold. It does not work that way, because the test is on ATI, not taxable income.
- It will not move your CCS rate down either. Sacrificing into super does not cost you subsidy compared with taking the same money as pay.
Your employer's compulsory super contribution is not a reportable super contribution, so it is not counted at all.
Salary packaging and novated leases
Salary packaging works differently. A packaged benefit that is reportable appears on your income statement as a reportable fringe benefits amount, and that amount is grossed up — it is reported at a higher figure than the value of the benefit itself. ATI adds the grossed-up amount.
So a packaged benefit can add more to ATI than the salary it replaced. It depends on the benefit and your employer, and the number to use is the reportable fringe benefits amount on your income statement.
If your employer is a public benevolent institution, a health promotion charity, or a public or not-for-profit hospital, or a public ambulance service, the reportable amount is reduced by the fringe benefits tax rate (47%) before it goes into ATI.
What a change in ATI does to your rate
Once you know your family ATI, the standard CCS rate follows a set scale:
- Up to $88,520, the standard rate is the maximum, 90%.
- Above that, it falls by one percentage point for every $5,000 of family ATI.
- At $538,520 and above, the standard rate is zero.
Younger children aged 5 or under can attract a higher rate with its own income bands — see higher CCS for a second child.
This is why leaving salary sacrifice out of your estimate matters. If your family ATI is in the tapering range, every $5,000 missing from the estimate is a percentage point of subsidy paid during the year that is not owed.
Getting the estimate right
Centrelink pays CCS during the year based on your estimate of family ATI, then balances it against your actual ATI once both tax returns are lodged. Salary sacrifice and reportable fringe benefits are two lines that are easy to leave out of an estimate, because neither shows up in taxable income.
Centrelink holds back 5% of each CCS payment to cover small differences. That cushion is a share of your subsidy, not of your income, so it absorbs less than it sounds — about $22,500 of income error at the top rate, and about $5,000 at a 20% rate (both are amounts of income error, not steps of the taper). Our guide on what income to tell Centrelink walks through it, and CCS reconciliation explained covers what happens when the estimate and the actual figure differ.
Worth checking: if you or your partner salary sacrifice or package a benefit, is it in the family income estimate Centrelink has for you now? You can update the estimate at any time through myGov.
What to read next
- Does overtime or a bonus affect CCS? — the other common way income moves mid-year.
- What family income should I tell Centrelink for CCS? — building the estimate line by line.
- How much Child Care Subsidy will I get? — the whole calculation, start to finish.