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Maximising Tax Refunds: Claiming Children As Dependents

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Maximising Tax Refunds Claiming Children As Dependents

Tax refunds play a predominant role in setting some families on the road to financial reset. An often-missed chance to boost a refund lies in claiming a child as a dependent.

Not only does this lower your obligations for tax, but it can also serve to open certain advantages and allowances.

In Australia, understanding the rules related to dependent children will help you maximise your tax refund.

Understanding Dependent Child Status

Dependent status of a child under Australian taxation law varies with Family Tax Benefit requirements due to differently defined criteria.

Dependent status of a child under 16 determines the scope of your tax benefits and government allowances, based on their respective age groups and certain criteria.

In short, one needs to establish the nature of legal responsibility and residential arrangements followed with respect to children under the age of 16. The child should be taken care of by the parent or guardian under sole or joint legal functions.

However, there’s an important income threshold to consider – If a child under 16 years is not a full-time student and earns in excess of $262.20 per week, passed on anything, such a child can neither be claimed as a dependent nor to have any tax benefits entitled to them. 

Who Qualifies As A Dependent Child?

The definition of a dependent child varies depending on the context. For taxation and income support purposes, certain criteria must be met. These criteria differ based on the child’s age and circumstances.

Children Under 16 Years

A child under 16 is considered dependent if:

  • The taxpayer has legal responsibility, either alone or jointly, for the child’s daily care, welfare, and development.
  • The child is wholly or substantially in the taxpayer’s care and is not considered dependent on another individual.

However, a child under 16 cannot be considered dependent if:

  • They are not enrolled as a full-time student.
  • Their weekly income exceeds $262.20 from any source.

Children Aged 16 to 22 Years

A child between 16 and 22 can still be considered dependent if:

  • They are enrolled as a full-time student at a school, college, or university.
  • They are wholly or substantially dependent on the taxpayer.
  • Their annual income does not exceed $14,370.55.

A child over 16 ceases to qualify as a dependent if they:

  • Receive social security pensions or benefits, such as Youth Allowance.
  • Have an annual income above $14,370.55 from casual, part-time, or full-time employment.

Tax Benefits Linked To Dependent Children

Claiming children as dependents can impact various financial components, including specific tax refunds and allowances. Below are the main benefits affected by dependent children:

Rent Assistance

Rent Assistance is a non-taxable benefit designed to help with rental costs. The eligibility and distribution of this allowance depend on the child’s age:

  • For children under 16, Rent Assistance is paid as part of the Family Tax Benefit by Services Australia.
  • For families with children over 16 (or without children), the allowance is administered by the Department of Veterans’ Affairs (DVA).

Remote Area Allowance

Remote Area Allowance is a fortnightly, non-taxable payment designed to offset the additional costs of living in remote regions. This allowance increases by $7.30 per fortnight for every dependent child under 16. Notably, the child does not need to reside in a remote area but must generally live in Australia.

Reporting Obligations

Taxpayers claiming children as dependents must comply with reporting obligations to maintain eligibility for income support or tax benefits.

Key responsibilities include notifying authorities within 14 days (28 days for overseas residents) of any changes that might impact the dependency status.

Examples of such changes include:

  • Loss of custody or control of the child.
  • The child’s travel overseas.
  • The child’s cessation of full-time education.
  • The child receives payments like Youth Allowance or Veterans’ Children Education Scheme.
  • The child’s income exceeds $14,370.55 annually.

Failure to report changes can result in overpayments, which will need to be repaid, even if the taxpayer met their obligations on time.

Dependent Children And Pensions

Dependent children can influence the amount received under pensions and allowances.

Here is a summary of the key effects:

Benefit Type Impact of Dependent Children
Rent Assistance Included in Family Tax Benefit for children under 16.
Remote Area Allowance Increased by $7.30 per fortnight for every child under 16.
Income Support Payments Adjusted based on dependent status and the child’s income level.

Key Considerations

Maximising tax refunds by claiming children as dependents requires attention to detail. 

Here are some essential points to remember:

  1. Understand Income Limits: Ensure the child’s income does not exceed thresholds, such as $262.20 weekly for children under 16 or $14,370.55 annually for those over 16.
  2. Monitor Eligibility: Stay updated on eligibility requirements, especially if your circumstances change.
  3. Leverage All Benefits: Explore additional allowances like Rent Assistance and Remote Area Allowance to maximise financial advantages.
  4. Comply with Reporting Rules: Avoid penalties or overpayment issues by promptly reporting changes in the child’s dependency status.

Want to Maximise Your Tax Refunds This Year?

Struggling to understand the rules around claiming dependents? Leading Tax Experts are here to simplify the process and help you access every eligible tax benefit. With our best tax accountants personalised advice and years of expertise, we ensure you don’t leave money on the table. Get in touch today and maximise your tax refunds with ease!

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