The City of Cockburn's response to PerthNow Cockburn on 18 November 2021 about the closure of the In-Home Childcare Service
The City has historically provided this service on behalf of the Commonwealth Government on the basis that the City is an administrator of the funds at a local level, and not the operator of the service.
Due to the ATO reclassification and the Commonwealth Government’s subsequent funding changes, it is not possible or appropriate for the City to continue to provide this service and use ratepayer funds to effectively subsidise a Commonwealth obligation.
Question: When will this service finish (if it hasn’t already)?
Answer: The service will formally close on the 23 December 2021, however the City and the Commonwealth Government’s In Home Care Support Agency have already started supporting families and educators to move to other IHC service providers.
Question: What are some of the reasons behind the closure?
Answer: The City’s continued delivery of IHC under an Employment Model as now required by the Australian Taxation Office (ATO) will add costs of up to 27 per cent, making the In-Home Childcare (IHC) service no longer affordable for the 23 families that use the City’s service.
No funding of any kind is provided by Department of Education, Skills and Employment to the City of Cockburn for the operation of IHC, therefore all additional costs relating to meeting the employment cost requirements would have to be passed on to parents.
The ATO has reclassified the status of educators providing Commonwealth IHC services from a Contractor Model to an Employment Model. This means the ATO now considers IHC operators providing these services on behalf of the City of Cockburn, as City employees or workers, and not independent sole traders.
If the City was to move to an Employment Model as is now required by the ATO ruling, adding the cost of the Superannuation Guarantee and employment costs (entitlement to the City’s additional superannuation, annual leave and annual leave loading, long service leave and workers compensation insurance) to the parent fees would make the service, which is currently a low cost one, extremely expensive.
The Employment Model is also not feasible from an operational, work health and safety (WHS) risk perspective, as the City would be adding an additional 23 buildings to its risk register.
This makes the City liable for providing a safe workplace for its educator employees and, potentially pay for retrospective building changes to satisfy the new WHS laws.
Changes to the WHS legislation also assigns individual liability for the workplace, ultimately making the City’s CEO responsible for 23 home workplaces.
This makes the employer legally culpable if someone is injured in a parent’s home, now defined as a workplace. The City has little control over what happens in a family home whereas in an office or other work environment, the City can exercise control in a more defined manner.
Question: How has the financial burden of funding this service since 2018 impacted the City?
Answer: The total outstanding for the City to pay is $791,091.57.
Superannuation Guarantee $544,579.81
Nominal Interest $191,708.25
ATO Administration Fee $10,800.00
Settled Payment (Educator) $ 24,003.51
Additional Superannuation $ 20,000.00 (during Notice of Closure period)
Total: $791,091.5
The City will write to the ATO asking it not to charge the nominal interest and the administration fee on the basis that the City has met its ATO determined obligations as soon as practicably possible and that the City has been an outstanding taxpayer, meeting all of its taxation obligations as and when they fall due.
The imposition of the nominal interest and administration fee the City feels is an unfair penalty.
Legal costs incurred to date are $76,076. The cost of mounting an appeal could be another $100,000, with no guarantee of success.
The City has received legal advice from its solicitors, Jackson McDonald. The decision to settle the matter as recommended notes the significant cost already incurred and the potential for more legal fees should the Council appeal the decision of the ATO, with no assurance that the decision would be favourable to City.
Question: Does the City have other childcare services that the families that were using the IHC could access?
Answer: The City does not operate any other service that would meet the complex needs of these families.
Families access IHC due to challenging and complex needs, including caring for a child with additional needs or disability whose requirements cannot be met in another approved childcare setting or through other government-funded or community-based services, a family where a parent is undergoing treatment for a serious illness or other complex or challenging family situations that prevent families from accessing other approved childcare types.
Question: Will the City look to help transfer those clients to its other childcare services?
Answer: The City does not operate any other service that would meet the complex needs of these families.
Yes, it is the aim of the City that families and their current educators will transition to an alternate service together, to maintain continuity of care for the families and their children.
Families and Educators will be supported by the City of Cockburn and the Commonwealth Government’s In Home Care Support Agency:
- To research other available service providers themselves or to be provided with information from other available service providers, to allow them to determine the most suitable service for them to transition to
- To make an informed decision by being provided with a summary of available services incorporating service provision and costs.
Additionally, educators will be supported to go through a recruitment process with the service they select in order to be registered with that service.
Question: Has the number of families using IHC service increased or decreased over time?
Answer: The number of families utilising IHC has varied dynamically over the years, numbers decreased in recent times due to significant changes in the Commonwealth Government’s eligibility criteria for IHC, making less families eligible for this service type.
Question: Is the City aware of any other local governments that still fund this IHC service?
Answer: Yes, there is one other Local Government Authority which provides an IHC service in WA, and others located in other States.
Question: Anything else you’d like to add?
Answer: Affordability for parents is particularly important as many families access the IHC because they are experiencing complex and challenging circumstances, such as serious illness or disability. These factors often reduce their income, due to inability to work and/or other medical costs needing to be met.
The closure of the Cockburn IHC Service is clearly the responsibility of the Commonwealth Government and its contracted (and funded and controlled) IHC Support Agencies.
Department of Education, Skills and Employment staff have refused to assist and left the City of Cockburn with a large debt, which was not provided for in our contract with the Commonwealth Government.
The Commonwealth Government has been made aware of the issues and has not intervened or provided assistance to the City of Cockburn. They have indicated that this is not a matter for them, however the Commonwealth Government has effectively allowed the ATO to assess a Commonwealth Government initiated program to levy an impost that was not contracted for or envisaged by either the Commonwealth or the Service Providers, including the City of Cockburn.
Background:
On 21 October 2020, the City received an ATO audit notification requiring the City to provide a response regarding to the status of educators as workers.
On 13 November 2020, the ATO concluded that there was an employer/employee relationship under both the extended definition and common law definition of a worker.
On 30 March 2021, the City challenged this decision.
On 16 July 2021 the ATO confirmed that the original decision was upheld.
The City has been providing an IHC service under the Contractor Model on behalf of the Commonwealth Government since 2001, with educators operating as sole traders.
Communications with other service providers operating in WA have indicated the Employment Model of the IHC service is unaffordable for IHC families.