ATO benchmarks for child care

The ATO's child care services industry includes long day care and shorter-term care, before and after school care, and vacation care. Centres in the group may receive government funding, and some care is run privately by a sole carer or from the carer's own home. Foster care and play centres sit outside the group. The key range the ATO picks for child care is total expenses to turnover, the ratio it judges to forecast turnover for these services most accurately.

Services are allocated by their main reported activity. The ATO excludes services at either extreme of turnover, any that combine activities in what they report and any that had not completed a year in business before the year started, and removes outlying results.

Turnover is the income a service earns from the care it sells, excluding GST. Total expenses leaves out what is paid to associated persons, say a family member helping a home-based carer.

Child care has no published cost of sales ratio. A ratio appears only when enough of an industry reports the expense, and the ATO notes that many service businesses have little cost of sales. The ATO also takes salary and wages out of cost of sales when it works out that ratio, so educators' pay would not count there.

Child care costs therefore land in total expenses: educators' and cooks' wages, agency fees for relief staff, the centre lease, kitchen groceries, art and play supplies, excursion and bus hire costs, power and water, insurance, and any vehicle used for school pick-ups. The ATO's page also sets out rent and vehicle expense shares for child care.

Each range is a band of services gathered about the mean for child care services of that turnover. The ATO rounds it to whole numbers, and it marks neither a minimum nor a maximum. Child care's turnover ranges are set from the way this industry's results are spread, separately from every other industry.

The expense share rises firmly as turnover grows. In 2023-24 the lowest and middle bands are equally wide, the highest band is much narrower, and none of the bands overlap. In 2022-23 the middle band was the widest and it overlapped the highest band.

Against 2022-23, the 2023-24 bands for the lowest and middle ranges sit lower at both ends. The highest range moved the other way at its floor, which rose, while its ceiling stayed the same.

Above the band, costs are high against fee income. In child care that can point to staffing or rent out of step with attendance: more educators rostered than a quiet day's numbers need, or a lease sized for more places than families fill. Food prepared and thrown away adds wastage, groceries bought at retail prices raise input costs, and for a home-based carer, household shopping put through as the service's food counts personal goods as business supplies. Fees paid in cash and not recorded, or fee cash spent on excursion costs before it is entered as income, also lift the share.

Below the band, some costs may have gone unrecorded, such as cash wages for relief educators or supplies bought on a personal card, or the service may simply run leanly with little waste. To clear a recording cause first, the books can show:

• Total fees charged in the enrolment software compared with fee income in the books
• Every grocery, nappy and cleaning bill entered, small cash purchases included
• Cash wages and payments to relief educators recorded
• Fee receipts from families and subsidy payments matched to bank deposits

The ratio is total expenses over turnover, both read off a whole financial year's profit and loss statement, and the result is compared with the band for the service's turnover range. A service that opened part way through the year, is in its first year, faced a one-off playground repair of unusual size, or runs another activity alongside care reads differently, since the ATO leaves out first-year services, businesses with more than one activity and outlying results. A home-based carer and a centre can also fall into different turnover ranges, so each lines up against its own band.