The term “breadwinner tax” has gained attention in discussions about Australian families where one parent earns most or all of the household income while the other stays home to care for children.

In this episode of The Account Rant, Latitude Accountants CEO John Saade spoke with Leigh Morris from SFP Financial about whether Australia’s tax and childcare systems create different financial outcomes for one-income and two-income households.

The discussion explored a simple scenario: a household where one person earns $300,000 while their partner does not earn an income can face a different overall tax position from a household where two people collectively earn the same amount.

The difference becomes particularly important when childcare, superannuation, tax brackets and other family costs are considered.

How Does the Breadwinner Tax Work?

Australia generally taxes individuals based on their individual taxable income, rather than taxing a couple on their combined household income.

That means a household with one person earning a high income may have a different tax outcome from a household where the same total income is divided between two working adults.

For example, consider a simplified comparison:

• Household A has one person earning $300,000.
• Household B has two people earning $150,000 each.
• Both households have the same gross household income.
• However, the income is distributed differently between the individuals.
• Because Australia’s individual income tax rates are progressive, the tax payable can differ significantly.

This is the basis for the “breadwinner tax” argument discussed by John and Leigh.

It is important to note that the term is not an official Australian tax. Rather, it is a way of describing the perceived financial difference experienced by some single-income households.

The Real Cost of Childcare

Tax is only one part of the calculation.

For families with young children, having both parents work can also create additional costs, particularly childcare.

A second income may increase household earnings, but families need to consider the expenses associated with enabling both parents to work.

These can include:

• Childcare fees
• Transport costs
• Additional meals and convenience expenses
• Work-related clothing and equipment
• Reduced time available for household and family responsibilities

This creates an important distinction between gross income and disposable household income.

A parent returning to work may increase the household’s income but also introduce significant additional expenses.

Childcare Subsidy Considerations

The Australian Government assists with the Child Care Subsidy (CCS), with eligibility and subsidy rates determined by factors including family income, recognised activity and other circumstances.

This means the amount a family actually pays for childcare can vary considerably.

For higher-income households, the subsidy may cover a smaller proportion of their childcare costs. As a result, families need to consider their actual after-tax and after-childcare position rather than simply comparing salaries.

The Superannuation Issue for the Stay-at-Home Parent

Another issue raised in the discussion is retirement savings.

When one parent takes time away from paid employment to care for children, they may also spend years receiving less or no compulsory employer superannuation contributions.

Over a long period, this can affect retirement savings because the person has potentially missed:

• Employer superannuation contributions
• Investment growth on those contributions
• Opportunities to increase their own super balance
• Career progression and future earning capacity

This issue can be particularly relevant when one partner becomes the primary carer for an extended period.

Couples considering a single-income arrangement should therefore look beyond their immediate household budget and consider how they will maintain both partners’ long-term financial position.

Have Australian Tax Brackets Kept Pace With Modern Family Costs?

John Saade and Leigh Morris also discussed the broader relationship between income tax, wages and the rising cost of living.

Australian households have experienced significant changes in housing, childcare and everyday living costs over the years. At the same time, Australia’s individual income tax system remains based on progressive tax brackets.

When incomes increase, taxpayers can move into higher marginal tax brackets.

This does not mean all of their income is taxed at the higher rate, but the additional income can result in a larger overall tax liability.

For a single-income household, this can create a different outcome from a family where income is distributed between two taxpayers.

Should Couples Be Allowed to Split Income?

One of the policy ideas discussed in the episode was income splitting.

Under an income-splitting system, some household income could potentially be allocated between spouses for tax purposes.

Supporters of the concept argue that it could provide a different tax outcome for households where one parent earns the majority of the income while the other provides unpaid care.

However, changing the tax treatment of couples would involve broader policy considerations, including:

• The cost to government revenue
• Fairness between different household structures
• Interaction with existing family payments
• The treatment of single-parent families
• Effects on workforce participation
• How income splitting would be designed and limited

These are policy questions for government rather than decisions individual accountants can make for taxpayers.

Which Work-Related Expenses Can You Claim?

The conversation also raised whether more expenses associated with earning income should be deductible.

In Australia, not every expense connected with employment is automatically tax deductible. Generally, an expense must meet specific requirements, including having a sufficient connection to earning assessable income and satisfying relevant substantiation rules.

Depending on the circumstances, taxpayers may be able to claim certain expenses relating to:

• Specific work-related travel
• Eligible work-related clothing
• Tools and equipment
• Training and education
• Working from home
• Other directly work-related expenses

However, ordinary private expenses are generally not deductible simply because they help someone get to or perform their job.

The same principle applies to entertainment and other expenses: the tax treatment depends on the nature and purpose of the expenditure and the applicable tax rules.

Could Childcare Become Tax Deductible?

Childcare was another major point raised during the discussion.

The speakers considered whether families paying childcare costs out of their own pockets should receive some form of additional tax relief.

Australia already assists with the Child Care Subsidy, so introducing an additional deduction would need to consider how the two systems interact.

For families, the underlying issue is straightforward: how much money is left after tax and childcare costs?

That figure can be more useful for household decision-making than simply looking at the salary generated by a second income.

Are Families Changing Their Decisions Because of Cost?

The discussion also touched on the broader question of whether financial pressures are influencing Australians’ decisions about when or whether to have children.

Housing costs, childcare, everyday expenses, employment decisions and household income can all form part of a family’s financial planning.

However, family decisions are influenced by many factors, including personal circumstances, relationships, career goals and individual preferences.

Rather than assuming one factor explains Australia’s changing birth rate, it is more useful to recognise that financial considerations can be one part of a much larger decision.

What Should One-Income Families Consider?

For families considering having one primary income, the tax calculation should be only one part of the planning process.

Consider:

• After-tax household income: What will actually be available after income tax?
• Childcare costs: Would returning to work create significant childcare expenses?
• Superannuation: How will both partners continue building retirement savings?
• Insurance: Is the primary income adequately protected?
• Emergency savings: Could the household manage a period without the primary income?
• Debt: Can the household comfortably service its mortgage and other debts?
• Future earning capacity: Could time away from work affect future income?
• Family benefits: What government assistance may be available based on the family’s circumstances?

A professional adviser can help model different scenarios before a family makes a major financial decision.

Frequently Asked Questions About the Breadwinner Tax

Is the breadwinner tax an actual Australian tax?

No. “Breadwinner tax” is an informal term used to describe the perceived tax disadvantage that can arise when most household income is earned by one person rather than being divided between two taxpayers.

Why can two-income families pay less tax on the same household income?

Australia generally taxes individuals rather than couples on their combined income. Because individual tax rates are progressive, dividing household income between two taxpayers can produce a different total tax outcome.

Does having two incomes always leave a family better off?

Not necessarily. Families also need to consider childcare, commuting, work-related expenses and other costs associated with having both parents working.

Can a stay-at-home parent receive superannuation?

A person who is not earning employment income generally does not receive compulsory employer superannuation contributions. However, couples may be able to consider voluntary contributions or eligible spouse contribution strategies depending on their circumstances.

Can I claim childcare as a tax deduction?

Childcare has specific tax treatment and should not automatically be treated as an ordinary work-related deduction. Families should consider the Child Care Subsidy and seek professional advice based on their circumstances.

How can I compare a one-income and two-income household?

Compare the household’s after-tax income and total costs, not just gross salaries. Include childcare, commuting, work expenses, family benefits, superannuation and other relevant costs.

Speak With Latitude Accountants About Your Family’s Tax Position

Every household is different. If you’re considering becoming a single-income family, returning to work after having children, or simply want to understand how different income arrangements could affect your tax position, professional advice can help you make an informed decision.

Latitude Accountants provides tax, accounting and advisory services for individuals and businesses across Australia.

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📧 info@latitudeaccountants.com.au

Enquire with Latitude Accountants to discuss your circumstances and understand your options.

Disclaimer

This article provides general information only and does not constitute financial, legal, tax, property, insolvency or business advice. Tax rules, government benefits and eligibility requirements can change. Speak with a qualified adviser about your individual circumstances before making financial or tax decisions.