Childcare is a work expense, even if the Tax Office says it isn’t

I can claim a handbag when I use it to carry my laptop and work documents. I can claim professional subscriptions, training that maintains my skills, and travel between workplaces. The tax system understands that earning an income involves costs.

Yet childcare, the expense that allows many parents to perform any paid work at all, is treated as private. The ATO’s position is clear: childcare fees cannot be claimed as a deduction. That rule may be settled. Its logic is not.

I do not place my child in care so I can have a holiday; I do it because my employer expects me to be available, present and productive. The care is purchased for the precise hours in which I earn taxable income. Without it, there is no workday and no income to tax.

For anyone responsible for a workforce, this is not an abstract tax question. It is one of the quiet forces shaping who stays, who advances, and who steps back.

The assumption behind the rule

Classifying childcare as private rather than work-related may once have reflected a workforce in which one parent, usually the mother, stayed home to provide unpaid care while the other went to work. Today, many households have both parents in paid work. The unpaid care that once happened at home has become paid care purchased from a provider. The economic reality has changed; the tax treatment has not.

Not every expense that makes life easier should be deductible. Childcare is different because its work-related portion can be identified: days of care can be matched to days of employment, the provider can be verified, and the amount can be documented. Where care is used partly for work and partly for other purposes, it can be apportioned – as mixed-use phones, vehicles and equipment already are. The question is not whether childcare has a private dimension. It does. The question is whether the portion purchased because a parent is working has a direct relationship to the parent's earned income. It plainly does.

Cost of living is not just the supermarket

The cost-of-living debate tends to happen in the supermarket aisle. But for many families with young children, the bills that decide whether the household budget works are housing and childcare. A family can change grocery brands or cut discretionary spending. It cannot casually reduce the care required on the days both parents must work. Childcare is a structural cost: large, recurring and difficult to avoid.

It is also unusual in that earning more can cause the expense to rise. An extra day of work may require an extra day of care. The parent earns more, pays more tax, may receive less family assistance, and then pays the childcare gap from what remains. Treasury has illustrated circumstances in which secondary earners lose more than 60 per cent of additional earnings after tax, with the loss exceeding 80 per cent on a fifth day of work, after accounting for payment withdrawals and childcare costs.

The labour market records the result as a preference for part-time work. In many households, it is simply arithmetic.

The second-earner penalty is usually a woman’s penalty

Childcare is described as a family expense, but it is rarely treated that way when a couple weighs whether work is “worth it.” The fee is set against the lower or more flexible income – and that income still disproportionately belongs to the mother. The father’s career is rarely subjected to the same test. His income is the household baseline; hers is the amount that must justify the cost of care.

That framing shapes decisions your organisation sees every day: returning three days rather than five, declining a promotion, refusing travel, staying below capability, or leaving altogether. The effects compound: slower salary growth, fewer leadership opportunities, lower superannuation contributions, and less financial independence. Making the work-related cost deductible would not hinder women’s ambition. It would reduce the financial penalty for acting on it.

The employer and the economy pay too

When childcare makes employment uneconomic, the loss does not stay inside the family. Employers lose experienced people, continuity and institutional knowledge. Recruitment and training costs rise. Leadership pipelines narrow. Organisations then discuss shortages of skilled women and the absence of women in senior roles as though those outcomes appeared at the top – rather than being built years earlier, one declined day at a time.

Employees are taxed as though their labour arrives at the workplace cost-free. For a parent of a young child, it does not. Care is part of the cost of making that labour available. That the care also benefits the child does not sever its connection to work, any more than training that improves someone’s broader prospects ceases to be deductible. Both things are true at once: high-quality early education supports children and enables parents – mothers in particular – to stay in paid work.

A deduction has a budgetary cost, but the calculation cannot end there. Higher participation produces taxable income, employer output, superannuation and stronger long-term earnings; it slows skill erosion and keeps more women on the path to senior work. A policy designed to change behaviour cannot sensibly be judged as though behaviour will stay the same.

A fair deduction is workable

Parents should be able to deduct verified, out-of-pocket childcare costs incurred to undertake paid work, after any Child Care Subsidy has been applied. Claims could be tied to workdays or required work travel, capped at a reasonable rate, and claimed by only one parent, with provider records forming an auditable trail.

Deductibility would not extend centre hours for shift workers, or fix workforce shortages in early education; those need separate supply and workforce reform. But the existence of other problems is no reason to preserve the wrong tax treatment. The system already handles substantiation, apportionment, caps and shared expenses. Complexity is manageable when the objective is judged worthwhile.

The cost we choose not to recognise

Tax rules embody assumptions about which costs belong to economic production and which should be absorbed privately. The current treatment assumes care sits outside work – even when it is bought for the exact period in which work occurs. It taxes the income and refuses to recognise a necessary cost of earning it. Because unpaid care and reduced paid work still fall more heavily on women, the rule is not gender-neutral in effect.

We tell women to participate, employers to retain them and families to work more hours. We then tax those families as though the care that makes employment possible were optional. It is not. For many parents, childcare is not a holiday expense fitted around work; it is the arrangement that makes work possible. A tax system built around economic reality should recognise it.

Annalinde Nickisch is the chief people officer at Probiotec Limited.