Child support ISN’T taxable income for everyone wondering if it is. Taxable income is the amount of income a person or company has to pay tax on. We can also call taxable income adjusted gross income or adjusted income minus deductions or exemptions.
Child support isn’t taxable income, but let’s discuss what child support and taxable income are. Parents use child support to ensure their child’s proper growth and development through financial payments. Importantly, the Child Support (Assessment) Act mentions the uses of child support payments such as for:
- Food
- Clothing
- Housing
- Medical bills
- Tuition fees
- Extracurricular activities
Each child is entitled to receive their own child support, regardless of how many there are in a family. Although, it’s not necessary that each child receives the same amount. This is because some children may need more expenses and coverage compared to other children. This article will discuss why child support isn’t taxable income.
Child Support Taxable Income: Who Calculates Child Support?
Parents wondering if child support is taxable income should be aware of paying child support. Usually, the parent who has more earning capabilities can pay child support, while the other parent receives it if they are the primary carer of the child. The Department of Human Services (DHS) is responsible for calculating child support to determine child support payments.
In order to make a successful assessment, the DHS will need both the parent’s contributions to the child’s growth. These are either financial contributions or care contributions for the child. Additionally, the DHS will also assess the child’s needs and welfare.
Parents are required to pay child support if they are separated or divorced. This means that parents who don’t live with their partner or children will still help in paying child support. Family lawyers can help in identifying the best arrangements for child support payments for both parents. They can also clarify why child support isn’t taxable income.
What is Taxable Income?
Taxable income is the income earned from wages, investments, and government fees. The DHS obtains information about a parent’s income from the Australian Tax Office (ATO). They also base child support payments according to a parent’s taxable income. Here is what’s included under adjusted taxable income:
Taxable Income
Taxable incomes are gross incomes minus permitted deductions. This includes:
- Wages and salary;
- Business income;
- Investment income;
- Taxable income support payments;
- Any taxable Department of Veterans’ Affairs (DVA) payments; and
- Job keeper payments from employers.
Taxable Lump Sum Payments
Taxable lump sum payments include taxable:
- Superannuation death benefits;
- Compensation payments;
- Insurance payouts; and
- Early superannuation.
However, this does not include super withdrawals under the First Home Super Saver Scheme or COVID-19 early release of superannuation.
Foreign Income
Foreign income is money earned outside of Australia on which people do not pay Australian income tax. It can also include funds from international company interests, investments, or earnings generated abroad.
Tax-free Foreign Income
Tax-free foreign income consists of money generated in Australia under the members of the military services serving overseas. This also consists of Australians working on projects approved by the Minister for Trade, Tourism, and Investment.
Total Net Investment Losses
Total net investment losses occur when investment income is less than investment expenditures.
Reportable Fringe Benefits
Reportable fringe benefits are pre-tax advantages people get from their companies. Payment summaries at the end of a fiscal year also record reportable fringe benefits. Although, people can ask payroll for the estimated amount for the current fiscal year. Some of the reportable fringe benefits can include:
- Rent or home loans
- Mobile phones
- Cars
- Schools fees
- Health insurance premiums
- Child care expenses
Reportable Superannuation Contribution
These are personal super contributions made through:
- A salary sacrifice agreement; or
- Claimed as income tax deductions when filing tax returns.
Tax-free pensions or benefits
Tax-free pensions or benefits can include Centrelink payments such as the Disability Support Pension or Carer Payment. It also includes non-taxable DVA payments such as:
- Invalidity Service pension;
- War Widow’s and War Widower’s pension;
- Partner Service pension;
- Income Support supplement;
- Tax-free Defence Force Income Supplement Allowance (DFISA); and
- People under the Military Rehabilitation and Compensation Act (MRCA). This also includes arrears and lump sums.
However, tax-free pension or benefits don’t include:
- Allowance for Caregivers
- Supplement for Caregivers
- Tax Break for Families
- Allowance for Pharmaceuticals
- Rent Assistance
- Additional Child Care Subsidy
- Payments for Bereavement
- Subsidy for Child Care
- COVID-19 Disaster Compensation
- Supplement for Pensioner Education
- Allowance for Remote Areas
Account-based income stream benefits
Parents over 60 are also eligible for an amount from an account-based income stream.
Child Support Taxable Income: Failure to Lodge Tax Returns
There may be parents who haven’t filed their tax returns before the child support period. This will result in the DHS estimating the parent’s income and calculating taxable income appropriately. If parents are expected to provide child support payments, it is critical that they file tax returns on time.
Parents receiving child support payments may also believe that the amount payable should be adjusted. Hence, they can apply to the DHS to alter the assessment. Alternatively, parents might choose to self-manage child support and avoid using the DHS. Rather than having the DHS determine how and who pays child support can reach an agreement amongst themselves.
With all of the different kinds of adjusted taxable income mentioned, parents should seek a family lawyer’s assistance. Family lawyers have the experience and capability in explaining child support and tax benefits for confused parents.
JB Solicitors’ Family Lawyers
Our family lawyers at JB Solicitors can help parents identify how much and who pays child support. Indeed, not all parents can agree on child support payments and may end up in dispute. Thus, our mediation services can help in settling this dispute through proper and civil agreements.
We can also identify if parents are entitled to tax deductions and offsets to reduce tax payments. Parents seeking child support reassessments should also seek the help of our team. Our fixed fees can cover parents’ monetary concerns while they receive the best legal advice for child support payments.
Contact JB Solicitors today.
