Child Care Subsidy increases to 95% for families earning under $80,000 from 1 July 2025, while activity test requirements are removed for vulnerable children. Higher subsidies also apply to families earning up to $530,000 annually.
What's changing in 2025?
The July 2025 Child Care Subsidy (CCS) reforms represent the most significant childcare affordability improvements since the current system launched in 2018. The key change extends the maximum 90% subsidy rate to families earning up to $120,000, compared to the previous $80,000 threshold.
These changes are designed to address the "cliff effect" where families faced dramatic subsidy reductions as their income increased. The new system provides a more gradual taper, ensuring families don't lose significant support for small income increases.
Subsidy % by income
The main changes include:
- Extended 90% subsidy: Maximum rate now available to families earning up to $120,000 (up from $80,000)
- Smoother taper: Subsidy reduces more gradually as income increases, dropping by 1% for every $5,000 in additional income
- Higher income cap: Families can earn up to $532,000 and still receive some subsidy (previously $374,000)
- Annual indexation: Hourly rate caps now only increase in July (previously twice yearly) to provide more predictability
New income thresholds
The revised income thresholds create a much more generous system for working families. Under the new structure, the vast majority of families will receive between 70-90% subsidy, significantly reducing out-of-pocket childcare costs.
How the new taper works
From July 2025, the subsidy calculation follows this structure:
- $0 - $120,000: 90% subsidy rate
- $120,001 - $530,000: Reduces by 1% for every $5,000 increase in income
- $530,001+: No subsidy available
For example, a family earning $140,000 would receive an 86% subsidy rate (90% minus 4% for the $20,000 over the $120,000 threshold, calculated as 4 × $5,000 increments).
Activity test remains
While subsidy rates increase, families must still meet activity test requirements to access subsidized hours:
- No activity: 24 hours per fortnight (safety net level)
- ≥8 hours per fortnight: 36 hours per fortnight
- ≥16 hours per fortnight: 72 hours per fortnight
- ≥48 hours per fortnight: 100 hours per fortnight
Rate cap vs average fee
Hourly rate caps vs average childcare fees (2025)
Calculate your out-of-pocket fee
Your out-of-pocket childcare costs depend on three main factors: your family income (which determines subsidy percentage), the hourly fee charged by your provider, and the number of hours you use.
How to Calculate Your Costs
Use the CCS estimator
The official CCS estimator in myGov provides personalized calculations based on your family income and chosen childcare provider.
Check hourly caps
Subsidies apply only up to the hourly rate cap. If your provider charges above the cap, you pay the difference plus your gap fee.
Understand payment timing
You pay gap fees directly to your provider, while the government pays their subsidy portion directly to the service.
Example calculation
Here's how the new system works for a typical family:
Family Example:
- Family income: $110,000
- Subsidy rate: 90% (within $120,000 threshold)
- Childcare fee: $12.00 per hour
- Rate cap: $13.73 per hour (long day care)
- Subsidised amount: $12.00 × 90% = $10.80 per hour
- Gap fee: $12.00 - $10.80 = $1.20 per hour
Changes for casual workers
The 2025 changes include easier activity test requirements for casual workers:
- Irregular hours: Ability to report variable hours more easily
- Evidence requirements: Simplified documentation for casual employment
- Review periods: Longer review periods to account for employment variability
Important dates and transitions
Key timing considerations for 2025:
- 1 July 2025: New subsidy rates take effect
- Automatic transition: Existing families will automatically receive updated rates
- New applications: Applications after 1 July automatically use new rates
- Rate cap indexation: Future increases only in July (not March)
Key Changes Summary
The 2025 Child Care Subsidy changes represent a significant investment in making childcare more affordable for working families. The extended 90% subsidy and smoother income taper will particularly benefit middle-income families who previously faced sharp reductions in support. Use the official CCS estimator to calculate your specific savings under the new system.
Families may also benefit from Rent Assistance increases if renting, and the Energy Bill Relief Rebate for household electricity costs.