Running a childcare centre means running one of the most unusual business models in Australia: most of your revenue arrives from the Commonwealth on a fortnightly cycle you do not control, your single biggest cost is dictated by legislated staff-to-child ratios, your service is GST-free while many of your costs are not, and your asset value is measured not in equipment but in licensed places and occupancy. An accountant who treats a childcare centre like a generic small business will miss most of what actually drives the numbers.

Trinity Accounting Practice has acted for childcare operators in Sydney for years — it is one of the industries we know best, which is why we published a full operator’s field guide, the Top 30 Cashflow Issues in Australian Childcare. This page covers the bigger picture: how CCS revenue really works, why ratios make wages behave like a fixed cost, the payroll tax and GST quirks specific to the sector, how to measure profitability per licensed place, and what the numbers need to look like when you buy or sell a centre.

CCS revenue — why your biggest customer is Services Australia

For most long day care centres, the Child Care Subsidy (CCS) represents 60–80% of revenue. Understanding its mechanics is non-negotiable for the person doing your books:

The subsidy is paid to you, not the family. Services Australia pays CCS directly to the provider after session reports are submitted, and you charge families the gap fee — the difference between your fee and the subsidy.
Timing risk sits with you. Late or rejected session reports delay the payment cycle. A centre submitting reports two days late every fortnight is permanently running a working-capital deficit of tens of thousands of dollars.
The 5% withholding. Services Australia withholds a portion (default 5%) of each family’s CCS to buffer against debts at income reconciliation. That money may come back to the family, not to you — your fee setting and gap-fee collection need to assume it does not exist.
Hourly rate caps move annually. For 2025–26 the centre-based day care cap for under-school-age children is $14.63 per hour, indexed each July. If your fee sits above the cap, every increase falls entirely on the family as gap fee — which is where occupancy risk lives.
Family-level variability. CCS percentages taper with family income (up to 90% for lower-income families in 2025–26), so two centres with identical fees and occupancy can have very different gap-fee collection profiles depending on their demographics.

Gap fees are the part you must actually collect, and since 2023 they generally must be collected electronically. Weak gap-fee collection is the single most common childcare cash flow problem we see — issue 1 on our Top 30 list for a reason.

Ratios — why your wage bill behaves like rent

Under the National Quality Framework, staffing ratios are legislated: in NSW, 1 educator to 4 children for under-2s, 1:5 for over-2 to under-3, and 1:10 for 3 to 5 year olds. The financial consequence is profound: wages — typically 55–70% of revenue in long day care — are not a variable cost you can trim. They are a step cost driven by your room configuration and enrolment mix.

What this means in practice:

The nursery room is usually your least profitable room. At 1:4, an under-2s room of 8 children carries two educators all day. The same two educators could supervise 20 preschoolers. Fee differentials rarely close that gap fully.
One enrolment can trigger a whole educator. Going from 10 to 11 in a preschool room means a second educator — the eleventh child can be the most expensive enrolment you ever take unless the room fills behind them.
Casual coverage and agency staff are margin killers. Award compliance under the Children’s Services Award (and the 2024–25 Government-funded educator wage increases) means precise rostering against ratios is a financial function, not just an operational one.

A childcare accountant should model profitability room by room, not centre-wide. Centre-wide averages hide a nursery losing money behind a preschool room subsidising it.

The tax quirks: GST-free revenue, payroll tax and BAS

GST

Approved child care is GST-free under the GST law. That sounds like good news, and it is — but it has a consequence many bookkeepers miss: you charge no GST on fees, yet you can still claim input tax credits on your GST-bearing costs (rent on commercial premises, equipment, consumables, utilities). A correctly prepared BAS for a childcare centre is usually a refund. We have taken over files where centres were not registered for GST at all and had simply forgone years of input credits, and others where GST had been incorrectly charged on fees. Both errors are pure money. See the ATO’s guidance on GST and child care.

Payroll tax

With wages the dominant cost, childcare centres hit the NSW payroll tax threshold ($1.2 million of taxable wages for 2025–26, taxed at 5.45% above it) faster than most businesses of similar revenue. A 60-place centre with $1.6 million of wages has an annual payroll tax bill around $21,800 — and grouping rules can aggregate wages across commonly controlled centres, so an operator with two 40-place centres may be over the threshold even if each centre individually is not. Multi-centre operators need their grouping position reviewed before Revenue NSW reviews it for them.

Profit per licensed place — the number that values your centre

Childcare centres are bought and sold on earnings, and earnings are best understood per licensed place. The working metrics we run for operator clients:

Revenue per licensed place — total fee revenue (CCS plus gap) divided by approved places. Benchmarks vary by Sydney sub-market, but the trend over time matters more than the absolute figure.
Occupancy — utilised hours over available hours. The difference between 78% and 90% occupancy is usually the difference between an average centre and a valuable one, because the costs barely move.
Wages-to-revenue ratio — sustained drift above roughly 65% in long day care is the earliest warning sign we watch for.
EBITDA per place — the valuation driver. Buyers and lenders commonly price centres on a multiple of normalised EBITDA, and small improvements in occupancy and gap-fee collection compound directly into sale value.

Buying or selling a centre — where the diligence money is

When a centre changes hands, the numbers that matter are not just historic profit:

Provider and service approvals. CCS approval does not automatically transfer with the business — the transaction structure (shares versus business assets) drives the regulatory pathway, the tax outcome and the risk you inherit.
Normalised earnings. Owner-operators often under-pay themselves or run family members through payroll; earnings must be restated with market-rate management before a multiple is applied.
The lease. A centre is worth little without tenure. Lease term plus options should comfortably exceed the payback period implied by the price.
Employee entitlements. Accrued leave and long service leave for a 20-educator team is a six-figure liability that must be adjusted at settlement.
CGT concessions on exit. Sellers who plan ahead may access the small business CGT concessions — potentially reducing tax on the sale dramatically — but eligibility (turnover or net asset tests, active asset test, structure) must be engineered years before the sale, not discovered at contract.

Worked example — the Beverly Hills 62-place centre

A 62-place long day care centre near Beverly Hills was running at 81% occupancy with revenue of $2.45 million and wages of $1.63 million (66.5% of revenue). The owner felt busy but poor: EBITDA was about $185,000, roughly $2,980 per licensed place. Our room-level analysis found the nursery (12 places at 1:4) was losing about $48,000 a year while the two preschool rooms carried the centre, and gap-fee arrears had crept to $39,000 because direct-debit dishonours were not being followed up weekly.

Over 14 months the centre lifted gap-fee collection (arrears down to $8,000), repriced and re-marketed the nursery with a waitlist strategy that lifted whole-centre occupancy to 89%, and restructured rosters so lunch-cover casuals were replaced by adjusted shift patterns within ratio. Wages fell to 62% of revenue. EBITDA reached approximately $342,000 — about $5,500 per place. On the EBITDA multiples buyers were paying for Sydney centres at the time, that operational work added several hundred thousand dollars to the centre’s value, before any thought of selling.

A Trinity insight from 22 years in practice

Childcare is the industry where the gap between gross revenue and owner reward is most often invisible to the owner. We have met operators with $2.5 million of revenue who could not say what their nursery room earned, what their gap-fee arrears were, or when their next CCS payment would land. The fix is never heroic — it is a room-level P&L, a weekly arrears report, and a 13-week cash flow that knows the CCS cycle. Centres that run those three reports stop having cash flow crises within a quarter. It is the most reliable transformation we see in any industry we serve.

What this means for you

If you do not know your profit per room: ask for a room-level P&L — centre-wide figures hide where the money is made and lost.
If gap-fee arrears are growing: implement weekly dishonour follow-up now; it is the fastest cash improvement available in this industry.
If your BAS never shows a refund: have your GST treatment reviewed — childcare fees are GST-free, and input credits on your costs may be going unclaimed.
If you operate more than one centre: get a payroll tax grouping review before Revenue NSW does one for you.
If you are thinking of selling within five years: start the CGT concession planning and EBITDA normalisation now — value is built in the years before the contract.
If wages have drifted above 65% of revenue: the problem is usually rostering against ratios, not pay rates — and it is fixable.

How Trinity can help

Trinity Accounting Practice provides childcare-specialist accounting for Sydney operators: room-level profitability reporting on Xero, CCS revenue reconciliation, gap-fee and arrears management systems, BAS and GST-free treatment done correctly, payroll tax and grouping reviews, benchmarking per licensed place, and buy-side or sell-side support including small business CGT concession planning. We already act for childcare centres — this is home ground for our team, and our Top 30 childcare cashflow issues guide is the practical companion to this page.

Book a childcare accounting chat with the Trinity team →

General advice only. This article contains general information current as at June 2026 and does not constitute tax, financial or legal advice. It does not take into account your personal circumstances, objectives or needs. Before acting on any information in this article, you should consider its appropriateness to your situation and seek professional advice from Trinity Accounting Practice or another qualified adviser. Liability limited by a scheme approved under Professional Standards Legislation.