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DET 09/02
01 Apr 2009

Changes/clarifications to Determination DET 09/02: Standard-Cost Household Service for Childcare Providers ("Educators")

Notice changes/clarifies 'DET 09/02: Standard-Cost Household Service for Childcare Providers' including depreciation on certain buildings.

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Legislation enacted in November 2003 (with effect from 1 April 2003) allows the Commissioner to issue a determination of standard-costs for specified home based services to provide a consistent and legal framework for the taxation of home based service providers, including the home based childcare industry.

Standard-cost Determinations are intended to be used by service providers who are generally paid a low hourly rate and consequently their tax obligations may be disproportionate to the amount of tax involved. The availability of a standard-cost determination enables those taxpayers to meet their tax obligations with minimal compliance costs. For example, if a person who provides childcare services in their own home elects to use the standard costs in Determination 09/02 ("DET 09/02") and payments received are below the annual calculation, they will not have to pay income tax and will not be required to file an income tax return for that year, provided they do not have other income.

In accordance with the new provisions, in May 2004 Inland Revenue issued Determination DET-001 (May 2004) which set out the components of expenditure (standard costs) that are typically incurred by educators who provide childcare services in their own domestic accommodation. Those standards costs were based on the requirements for care by educators who operate in accordance with the Education (home-based Care) Order ("the Order") and/or the Education (Early Childhood Services) Regulations 2008 ("the Regulations") and Licensing Criteria for Home-based Education and Care Services 20081. Determination DET-001 was replaced by DET 09/02 issued April 2009, with application to the 2009 and subsequent income years.

A person who provides private childcare in their own home and are not part of a licensed service provider network, is not able to use DET 09/02. These providers must keep full records of actual income and may claim a deduction for actual expenditure.


Following feedback on DET 09/02, this notice provides advice on changes and clarifications to accepted practice and the change to depreciation on buildings (to 0%) that impact on the fixed standard-costs for ownerships costs of domestic dwellings.

a)   That the application of DET 09/02 include before and after school care and recreation for school aged children (Change)

  • The scope of DET 09/02 is consistent with the Order, which specifies the standard of care for children up to five years of age (or six if starting school then). At the time of the original determination (DET-001) there were no additional licensing requirements for school-aged children cared for by chartered home-based providers. Provided the home-based care organisation was eligible to received Work & Income ("WINZ") childcare subsidies, it was accepted that if they were approved for preschool care, they were automatically approved for school-aged care.
  • From the 1980's through to early 2000's, many home-based care organisations offered before and after school care to families. Child, Youth and Family produced the Standards for Out of School Care and Recreation ("OSCAR"). At the time of issuing the original determination, OSCAR services for children aged 5 - 13 years was a common feature of home based childcare activity but never considered as part of the scope of the determination.
  • As the OSCAR activities are similar in nature to the home-based childcare services for preschool-aged children, some educators have extended their childcare activity to include OSCAR care for school-aged children. For these reasons the application of DET 09/02 is extended to cover payments received by educators for OSCAR activities. The extension of DET 09/02 to include OSCAR services will only apply to educators who have expanded their activity to provide care to school-aged children before or after school, and/or for school holiday programmes. The change will assist to simplify the tax obligations of educators providing care for school-aged children as an extension of their home based childcare activity. DET 09/02 does not apply to educators who only provide OSCAR care to school-aged children as they were not the focus of the original standard-cost determination.

b)   Retainer payments to educators (Clarification)

  1. Payments made to educators to preserve a child's placement in a childcare programme for absent children, or paid when an educator (or a family member) is sick, are to be treated as income (being payments for lost income) related to their home-based childcare activity. In these circumstances, an educator may also claim the related variable standard-costs as if the child(ren) had attended;
  2. Retainer payments to an educator while they are on vacation are also income related to an educator's home-based childcare activity. As they are on a planned absence from the home-based childcare activity while on vacation, they are not permitted to claim the variable standard-costs in these circumstances but are able to offset the full annualised fixed standard-cost amount for the use of their domestic property.

c)   Claiming of additional costs (Clarification)

  • Where an educator has incurred additional costs, which have not been identified as being regularly incurred and therefore not specifically listed in the standard-cost set out in DET 09/02, such additional costs will be allowed (being income related expenditure) as an additional standard-cost of providing their home-based childcare service. Examples are expenses incurred to meet the training requirements of the Order/Regulations for First Aid courses, qualification and ongoing professional development and ACC levies (when applicable).
  • However, an educator is not permitted to claim additional expenditure for costs already provided for under DET 09/02 in the variable and fixed standard-cost categories. For example, digital cameras, printers, cell-phones and car-seat harnesses as an alternative to car seats for small children, are already covered by the variable standard-cost components for "equipment" and "outings and associated transport costs".
  • The appendix to DET 09/02 provides an explanation of the variable standard-costs that refers to what each item within the cost elements are intended to cover. The examples are indicative only and every element refers to examples as being inclusive of those items.

d)   Apportionment of annualised fixed standard-cost for use of domestic dwelling and administration costs (Change & Clarification)

  • A worksheet is available to assist educators to work out whether they are required to return income for an income year. The first part of these worksheets is used to tally gross payments received each month and the childcare hours provided each month. The second part has a calculation for claiming variable standard-costs for the total hours of childcare provided. These worksheets also include an apportionment of the fixed standard-cost to the number of weeks childcare provided during an income year by educators. Some organisations (whether they use this worksheet or not) may advocate an apportionment of 52 weeks whereas others use a 48 week apportionment (presumably after allowing for vacation of 4 weeks each year).
  • The fixed standard-cost is calculated on an annual basis and does not vary for the number of children in care. It is acknowledged that educators incur some static costs (storage of educational resources and ongoing administration costs) for use of their domestic dwelling regardless of whether they are providing childcare services or on vacation or sick leave.

    • An apportionment should be calculated on a 52 week basis consistent with the number of weeks in an income year; not 48 weeks.
    • That educators operating a home based childcare activity for a full year (ignoring vacation breaks and absences due to sickness) may claim the full annualised fix standard-cost amount.
    • That educators who commence or exit a home based childcare activity part-way through an income year (1 April to 31 March) are required to apportion the fixed standard-cost amount relative to the number of weeks (or part weeks) their activity has been operated in an income year (52 week period).

e)   Adjustment to fixed standard-cost to reflect removal of depreciation on buildings (Change)

  • The current fixed standard-cost formula for calculating the notional costs of using a domestic dwelling for a home based childcare activity allows 5% of the purchase price to represent the expenditure normally incurred in owning a domestic property.
  • There have been changes to depreciation on buildings since the issue of DET 09/02 that impact on the fixed standard-cost component for use of a domestic dwelling. Tax Information Bulletin Vol. 22 No 7 (August 2010), provided comment on the changes to building depreciation enacted in the Taxation (Budget Measures) Act 2010. The changes were intended to make New Zealand's tax rules more neutral by recognising that allowing depreciation on long-lived buildings provides tax depreciation rates in excess of true economic depreciation rates. The depreciation rate of buildings (including domestic dwellings) with long estimated useful lives of 50 years or more, has been changed to 0%, with effect to the 2012 income year (for most taxpayers this will apply from 1 April 2011).
  • DET 09/02 provides for depreciation as a notional cost as a component of the fixed standard-cost in applying a domestic dwelling to a home based childcare activity. As a consequence of the May 2010 Budget change it is no longer appropriate to provide for depreciation on buildings in the standard-costs
  • With the removal of depreciation on buildings in the Budget 2010, some adjustment is required to the fixed standard-cost. The adjustment should have regard to increased property ownership costs that include maintenance of the land and related service costs. As the fixed cost amount is 5% of the purchase price of the property which includes the cost of land and improvements, the effect of removal of the depreciation element is a reduction to 4%.
  • The fixed costs percentage of the purchase price of the property used to calculate the ownership costs is reduced from 5% to 4% to reflect the change for depreciation on buildings.

The changes/clarifications have effect from 1 April 2011 and apply to the 2012 and subsequent income years.

1: As services are gradually being re-licensed under the 2008 Regulations and Licensing Criteria, the Order will become obsolete by 2014.