The recent passing of legislation for Paid Parental Leave is seen by many as a win for those thinking of starting a family. However, it is important to consider whether you are better off taking the Baby Bonus rather than the new Paid Parental Leave.
By taking paid parental leave, eligible Australians will forfeit the baby bonus, family tax benefit Part B and the dependent spouse offset. Industry modelling puts the average additional benefit at only $1000 to $2000 – and shows in some cases it could be to your detriment.
The rate of parental leave is the minimum wage (currently $569.90 a week) paid for 18 weeks – or $10,258 taxed. The baby bonus (now spread over 13 fortnights) is $5,294 untaxed. And on top of that comes the allowance and offset.
Take a couple earning $150,000 a year each, who have a baby on 1 March whereby the woman will not return to work. Paid parental leave would find them with $6,309 after tax, while the baby bonus alternative would net them $6,808. The higher amount is largely due to no tax on the baby bonus, and the other government benefits available.
The situation changes if the baby is born on 1 October. Here parental leave wins out, but only by $218. Not all it’s cracked up to be, is it?
Parental leave will be paid where the primary caregiver has taxable income of $150,000 or less in the financial year before birth. The baby bonus is paid where combined income in the six months after birth is $75,000 or less.
Where you are eligible for both paid parental leave and the baby bonus, the decision should come down to your incomes, when the baby is born, and how long you will be off work.
For more information, why not register to attend our Family Finance Workshop?