CCS cliffs explained: why costs can jump

Why some changes lead to large increases in out-of-pocket child care costs

When families talk about “CCS cliffs”, they are usually not talking about a single 1 percentage point change in their Child Care Subsidy (CCS) rate.

They are describing situations where their out-of-pocket child care costs increase noticeably, even though their income or circumstances only changed a little.

This happens because multiple CCS rules can apply at the same time. Individually, each rule is modest. When combined, they can produce large changes in out-of-pocket costs.

This guide explains:

• where those points occur
• why they feel abrupt
• how income, age, and adjusted taxable income interact
• when repayments can happen — and when they don’t

First, an important myth to clear up

There is no special income threshold where the maximum CCS rate ends just because a child is under 5.

• The maximum CCS rate (90%) applies up to the same income level for all families
• For the 2025–26 financial year, that level is $85,279 combined adjusted taxable income (ATI)
• Once income rises above this point, CCS begins to reduce

A child’s age does not change where the maximum CCS rate cuts out.

This misunderstanding is common and contributes to confusion about where CCS changes actually occur.

Where age does matter

Age matters because of a separate rule, not the income test.

The higher CCS rate for a second child under 6

If a family has:

• more than one child in care, and
• at least one child under 6 years of age (based on the child’s age on the day of care),

then the second and subsequent children under 6 receive a higher CCS rate.

That higher rate is:

• 95%, or
• 10 percentage points higher than the family’s standard CCS rate,
  whichever is lower.

This rule operates independently of income thresholds.

The points where families experience large CCS changes

The CCS system produces a small number of points where multiple rules combine to produce large changes in out-of-pocket costs.

Point 1: Leaving the maximum CCS rate zone (around $85,000)

This is the first major change many families encounter.

• Up to $85,279 (2025–26), families receive the maximum CCS rate
• Once income exceeds this level, CCS begins to reduce

Why this matters:

• Below this level, families are effectively insulated from income-based reductions
• Above it, each further increase in income reduces CCS
• Families using a lot of care often notice the effect quickly

This is often when families realise CCS does not reduce smoothly.

Point 2: Losing the higher CCS rate for a second child under 6

This is one of the largest single CCS changes, and it is not related to income.

It occurs when:

• a child turns 6, or
• the family no longer has more than one child under 6 in care

What changes:

• The higher CCS rate for that child stops
• That child’s CCS rate reverts to the standard CCS rate

This can be up to a 10 percentage point reduction for one child, applied immediately to all eligible care hours.

Do families have to pay CCS back when a child turns 6?

No — not simply because of the birthday.

• The CCS rate changes from the date the child turns 6
• CCS already paid before that date is not recalculated
• There is no automatic backdating due to age alone

Families do not incur a CCS debt solely because a child turns 6.

Why this still feels abrupt

Even without repayments:

• the CCS rate change applies immediately
• the reduction applies to every hour of care
• weekly out-of-pocket costs can increase noticeably from one week to the next

This is why families often experience this as a significant change.

Point 3: The income step-down over time

Between $85,279 and $535,279, CCS reduces progressively as income increases — see how CCS income thresholds and steps work for the full breakdown.

How this works:

• CCS reduces by 1 percentage point for each successive income band
• In practical terms, this equates to roughly one percentage point for every few thousand dollars of additional income
• Each reduction applies to all eligible care hours

On paper, this appears gradual.

In practice, income changes are often not gradual.

Why this can result in large changes

Income changes commonly occur through:

• promotions or role changes
• returning to work after parental leave
• both parents’ incomes increasing together
• bonuses or back pay
• selling investments or assets
• changes to salary packaging or novated leases

A single event can cross multiple income bands at once, resulting in:

• several CCS reductions occurring together
• applied across all care hours
• often identified later as part of a reconciliation

Families do not experience these as small changes.
They experience several reductions at once.

Point 4: CCS cuts out entirely (around $535,000)

This is the final income-based change.

• At $535,279 ATI (2025–26), CCS becomes 0%
• Above this point, families pay full fees
• There is no gradual phase-out beyond this level

Why FBT, novated leases, and investments often trigger CCS changes

CCS is assessed using adjusted taxable income (ATI), not just taxable income.

ATI includes items that may not feel like “income”, but still count for CCS assessment purposes.

Novated leases and salary packaging

If a family enters into or changes a novated lease (including EV leases), or adjusts salary packaging:

• the reportable fringe benefits amount (RFBA) may increase
• RFBA is included when calculating ATI
• taxable income can fall while ATI rises for CCS assessment purposes

This can move families across one or more CCS income bands unexpectedly.

Selling investments or realising capital gains

Selling shares, managed funds, or investment property can result in capital gains, which are included in ATI.

Even if the sale is:

• one-off
• used to reduce debt
• reinvested elsewhere

the gain still counts in the year it occurs and can materially affect CCS.

Bonuses, back pay, and lump-sum income

Lump-sum payments:

• are included in ATI
• can move families across several income bands at once
• affect CCS from the time the income is taken to have increased

This often explains why CCS adjustments are identified later.

Why timing matters (and when repayments occur)

When income increases:

• the lower CCS rate applies from the date the income actually changes
• earlier weekly CCS payments are not recalculated
• any difference between what was paid and final entitlement is often identified and settled at tax time

Key distinction:

• Age-based changes (such as turning 6) apply forward only
• Income-based changes may result in reconciliation

This explains why repayments are often associated with age changes, even though they are usually driven by income.

Why CCS Checker focuses on these points

Many calculators show only a family’s current CCS rate.

They do not show:

• how close a family is to a meaningful reduction
• how multiple rules interact
• how ATI changes affect CCS
• how timing influences reconciliation

CCS Checker focuses on:

• distance to income thresholds
• modelling ATI changes such as FBT or asset sales
• separating weekly cost changes from reconciliation risk
• showing the cumulative effect of multiple changes

The free version highlights proximity to the next CCS change.
Premium allows scenario modelling where several changes occur together, which is where families typically experience the largest impacts.

Plain-English takeaway

• CCS changes are rarely caused by a single small rule
• Large increases in costs usually occur when multiple rules apply together
• Age matters because of the second-child under-6 rule, not income thresholds
• Income, FBT, bonuses, and asset sales commonly trigger CCS changes
• Turning 6 increases weekly costs but does not create a repayment by itself
• Understanding these interactions early helps families avoid surprises later

Use our free CCS calculator to model your family's position and see which cliff points may affect you.

Sources

• Services Australia — Higher Child Care Subsidy
  https://www.servicesaustralia.gov.au/higher-child-care-subsidy

• Services Australia — Balancing your Child Care Subsidy
  https://www.servicesaustralia.gov.au/balancing-your-child-care-subsidy

• Services Australia — What is adjusted taxable income
  https://www.servicesaustralia.gov.au/what-adjusted-taxable-income

• Department of Social Services — Family Assistance Guide: Child Care Subsidy income test
  https://guides.dss.gov.au/family-assistance-guide/1/1/i/70