One important thing when filing your taxes is how to include children as dependents to maximise your return.
That is particularly so when you are mindful of the tax benefits available to you.
No matter whether you are divorced, separated, or living with a spouse, it is very relevant to know the rules with respect to reporting deductions related to children as your dependent on the tax return in order not to miss out on any savings opportunities.
Let’s consider in detail how to maximise your tax refund by claiming children as your dependent.
Why Claiming Children As Dependent On Taxes Matters?
The Australian Taxation Office (ATO) provides some tax credits and deductions to eligible parents who qualify. Those benefits reduce taxable income.
Thus, it may bring about fewer total taxes and even a good refund.
Here are some reasons why you should claim a child as your dependent:
- Childcare Allowances: These will eliminate your out-of-pocket costs for the child’s care.
- Family Tax Benefits: Provides allowance for payments to offset the price of having children.
- Medicare Levy Reduction: You may also reduce your Medicare Levy by claiming a child.
You may be eligible for the credit related to a claiming child as your dependent only if the people you’re claiming qualify as children, so it depends on a number of factors, including marital status and custody arrangements.
Who Can Claim A Child As Dependent On Taxes?
Before we explore the specifics, it’s crucial to understand who can claim a child as your dependent for tax purposes.
In Australia, the Australian Taxation Office (ATO) has clear guidelines:
Requirement | Details |
---|---|
Age Limit | Child must be under 21 or a full-time student under 25 |
Relationship | Must be your own child, adopted child, stepchild, or ex-nuptial child |
Residency | Child must be an Australian resident |
Income Test | Child’s income must be below the threshold |
In Australia, the parent who is the primary caregiver usually has the right to claim the child as dependent, but the situation can change depending on the family’s living arrangements.
Factors to Consider:
- Custody Arrangements: The child should live with the parent for more than half the year.
- Financial Support: The parent must financially support the child for the majority of the year.
- Marital Status: The rules vary depending on whether parents are separated, divorced, or living together.
Key Benefits Available
- Family Tax Benefit (FTB)
- Part A: Helps with the cost of raising children
- Part B: Extra assistance for single parents and families with one main income
- Child Care Subsidy
- Reduces out-of-pocket child care expenses
- Amount varies based on family income and activity level
- Education Tax Refunds
- Claim for eligible education expenses
- Includes uniforms, textbooks, and computers
Can Both Parents Claim The Same Child As Dependent?
If the custody order is 50/50, both parents cannot claim the same child as dependent within the same tax year. In the event that both parents are preparing their tax returns individually and including the child as living with them, then the ATO disallows one of the claims.
Under the rules of the Australian Tax Office, a tie is broken by using the concept of Adjusted Gross Income. Generally, the higher AGI parent earns the right to claim the child, but the custodial parent can execute an agreement in a formal deed to pass on the right to claim to the non-custodial parent.
Tax Benefits For Custodial Parents
The custodial parent can claim several tax benefits that help reduce their taxable income:
- Family Tax Benefit (FTB): A payment that helps with the cost of raising children.
- Child Care Subsidy (CCS): Helps cover part of the costs for approved childcare.
- Medicare Levy Reduction: A possible reduction in the Medicare Levy based on the number of dependents.
- Parenting Payment: This income-tested payment helps parents raising young children.
However, if the custodial parent signs an agreement releasing the claim to the non-custodial parent, the non-custodial parent can claim the child as dependent instead.
Special Considerations For Separated Parents
Claiming children as your dependent as a separated parent can be complicated.
Here’s what you need to know:
- Shared care arrangements
- When there is shared care, tax benefits are usually divided along with the percentage of care
- You usually need at least 35% care to qualify for some benefits
- Primary carer rules
- A parent with more than 50% care will be considered the primary carer
- Primary carers get priority when it comes to claiming certain benefits
Common Mistakes To Avoid
- Double claiming both parents cannot claim the same benefits for the same child
- Wrong percentage of care make sure you report your percentage of care correctly
- Not updating change in circumstances notify ATO about changes in care arrangements
Maximise Your Tax Refund With KPG Taxation Experts
KPG Taxation will guide you on when and how children as your dependent can be claimed on your tax return. From the rule to engage, we ensure you take advantage of all tax benefits. Let us handle your income tax filing and maximise your refund with care and precision. Reach out to KPG Taxation today and let’s get most out of your tax return!