What are the tax implications of receiving child support ATO?
In Australia, child support means a financial agreement between divorced parents to share the complete costs of raising their children. Services Australia and the Australian Taxation Office (Check their page here) work together when it comes to child support.
One of the roles of the ATO is to facilitate information sharing between Services Australia and other government agencies so they can share information. This allows them to calculate each parent’s income which is required to work out how much child support is needed.
This article will discuss the tax implications of paying and receiving child support in Australia, the issues, and the role of the Australia Taxation Office.
Child Support ATO: Tax Implications
At the end of each financial year, Services Australia requires you to confirm your income if you are a child support payer or recipient. You can do this by:
- Lodging a tax return.
- Non-lodgment advice if the Australian Taxation Office (ATO) tells you you don’t need to lodge a tax return. To find out if you need to lodge a tax return or not you can use this tool from the ATO.
When you lodge a tax return you may need to provide information from Services Australia depending on whether you’re paying or receiving child support:
- For parents paying child support.
The amount of child support you pay is not tax deductible. However, you may include the amount of child support you paid in your tax return for the financial year.
Basically, Services Australia will deduct your child support payments from your adjusted taxable income. This will work out your eligibility for certain services and payments such as the Family Tax Benefit.
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- For parents receiving child support.
Spousal and child support you receive is not taxable. This means you don’t need to include it in your tax return. However, if you get additional payments from Services Australia you may need to declare them if they are taxable.
Child Support ATO: How Does Your Income Affect Your Assessment?
Services Australia works out who pays child support and how much by looking at the income of both parents. Specifically, they usually use non-lodgment advice or income data from your tax return. After they process your tax return or non-lodgment advice they get this information from the ATO.
You will get an assessment letter from them after the ATO provides them with this information. However, if you haven’t lodged your tax return you can provide Services Australia with your adjusted taxable income for the most recent year that applies.
Services Australia may need a few recent income slips from you to verify your income.If you don’t, Services Australia will calculate a provisional income for you. This will be an estimate of your adjusted taxable income based on previous years.
Also, you need to tell Services Australia if there are any changes to your income. Your child support assessment may need to be adjusted by Services Australia. This includes if you stop or start receiving a Centrelink income support payment. They can’t backdate some income changes so you need to tell them as soon as possible.
Your income may be lower than what they are using in your assessment. If this applies to you you may be able to tell them an estimate of your income. They can only accept an estimate in certain circumstances. Your current adjusted taxable income must be at least 15% lower than what they’re using in your child support assessment.
However, you can’t estimate if the following agreements or orders are involved in your child support:
- a limited child support agreement
- a binding child support agreement
- a decision through the change of assessment process
- a court order
- an assessment from another country.
Child Support ATO: Tax Implications Issues
Paying and receiving child support ATO can have tax implications issues:
- For parents paying child support, they may not report payments in their tax returns. Not reporting these payments can result in penalties from the ATO. They may also not keep a record of all child support payments.
- Changes in income can be an issue as they can affect child support assessment. If there is a significant change in income for either parent it can result in changes to tax implications for both parties, especially for the paying parent’s taxable income and potential tax offsets.
- Disagreement about child support calculations or payments can also be an issue. The ATO doesn’t handle these disputes directly but these must be resolved before Services Australia to ensure accurate tax reporting for both parties.
If you’re experiencing these issues you need to talk to a legal expert to help you understand how child support payments will affect your overall tax situation.
Child Support ATO: Behind on Child Support Payments
What happens if the parent paying child support is behind on payments? Services Australia has a program called Child Support Collect. They can collect these payments and send them to the receiving parent.
In Child Support Collect Services Australia must:
- Make a child support assessment
- Accept a child support agreement
- Register a court order for child support.
There are other ways to collect child support payments:
- Self-management – Both parents agree on how much child support should be paid and agree on the schedule and mode of payment. Do not include amounts you may pay or provide to another person other than your child. You don’t need to involve Services Australia in this mode.
- Private collect – In this mode, there will be an assessment, agreement or court order that sets the amount and you and the other parent work out how and when to pay.
Get Legal Help from JB Solicitors
If your child support ATO situation is complicated, involves a dispute or significant changes occur, talking to a family lawyer from JB Solicitors can be helpful to make sure your interests are protected and your tax is done correctly.
We can help you with child support ATO complicated situations such as:
- If your child support ATO involves the total amount of self-employed income, significant assets or overseas income.
- You have a dispute with Services Australia or there is a calculation error about the assessment or the other parent.
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