Child support is any financial assistance given by the spouse for the upbringing of their child after separation. Child support is given to cover the needs of the child like school fees, medical bills and other miscellaneous expenses including food, clothes, and shelter. It is very natural to come up with the question—Is child support taxable income in Australia? The answer is NO, child support is not taxable income. Child support payments can be cash or non-cash and may vary for each child based on their specific needs, age and medical condition if more than one child is involved. A child once married or in a de-facto relationship is not liable to get child support. A parent may also choose to stop providing child support once the child is 18 years old.
Child support is merely the transfer of money from one parent to another to provide for the child’s financial needs and hence is not taxable. It is the money given usually by the parent whose income is on the higher side to spend for the child’s expenses. It is understood that child support money is to be used solely for the upbringing of the children and to meet their regular and emergency expenses. It is acknowledged that all deductions on the funds have already been made and taxes paid. Child support is essentially the after-tax amount that the parents would have spent on the child if they were living together. While child support payments are non-taxable, they can reduce family tax benefits. That may be the major financial downside of receiving child support money.
It is upon the Department of Human Services (DHS) to calculate child support. To determine the amount payable as child support, DHS will first determine which parent needs to make the payment. Based on the income of the parents, their care contributions and the specific needs of the child, DHS calculates the payable amount. You must file your tax returns on time for the DHS to estimate your total and taxable income and make calculations accordingly. If the parent who is receiving the child support feels there is a need to make changes to the child support payment, they can contact the DHS to make changes to the assessment. Parents can even arrange amongst themselves and determine how much child support payment is made and by whom keeping in mind the best interest of the child.
One could be under the impression that child support is a taxable income just like jobseeker and parenting payment. Any payment that comes through salary or wages, profit in business, financial investment and returns, stocks and shares and taxable government payments are taxable as they are considered sources of income. Child support, on the other hand, does not fall under sources of income as it is just the money that is transferred from one parent to other for the welfare and well-being of their child. When a spouse receives child support payment it is understood that all deductions are made and taxes are already paid when income is received at the source. Child support payment is just a transfer of money to the spouse to take care of the child’s financial needs as they would have if they were living together. It is a payment arrangement between the parents of the child and not any additional payment provided by the state or the government and that is why there is no question or need for deducting tax.
The key point to consider is that child support is not part of your total earnings and hence it is not taxable They can be categorised as domestic or private payments. The taxable income of the payment, however, affects the child support payment. A lesser taxable income accounts for receiving more child support amount. If your taxable income is higher than your spouse, you will be liable to make more child support payments. Whatever the child support amount that is determined, both parents must make the best interests of the child a priority and work out a plan together for the welfare and overall well-being of the child.
Receiving child support beyond a certain limit does reduce the share of family tax benefits (FTB). If you get the minimum amount of child support amount within the threshold, it does not affect the FTB. The more child support you receive or are entitled to, the lesser FTB you can get. Your FTB is reduced by 50 cents for every dollar of child support you receive beyond the threshold. Factors like the number of children in your care, your share of parental responsibilities, family’s income and the number of days you are eligible for FTB are taken into consideration while calculating FTB.
If you are a parent who is returning to work recently or for the first time after childbirth will also impact the FTB. Any change in the amount of child support you receive will reflect on FTB. It could also affect the way you recover the underpayments if any. If you change the way you collect or transfer child support, it could impact your FTB. If circumstances change for you or the other parent, in terms of an increase or decrease in your total earnings then the child support assessment is updated to reflect the latest changes in the income and payable amount. This will result in a change in FTB payment.
Taxable income does affect the child support amount and there is a significant relationship between the two. The higher your taxable income is, the lesser your eligibility to receive child support. A parent with higher taxable income receives lesser child support money. However, a higher taxable income means you will have to pay a higher amount as child support to your spouse. This is because it is understood that a higher taxable income is the result of higher income or total earnings. You can get a large amount of child support in shared parental responsibility arrangements if one parent’s earnings are remarkably higher than the others.
Giving or receiving money as child support, however, shows no impact on your total income as it is considered as expenses towards the child had the parents been living together. Income earned through salary, business ventures, investments and any taxable government payments falls under taxable income. Child support is not the income you earn and hence is not taxable. Any parent who is paying for child support has to do so after the income tax is paid. It is advisable to keep the tax files up-to-date in order to get the correct assessment of your taxable income and child support amount. You may also opt to go for a child maintenance trust as you may place the child support money in that to help you keep track of your child support expenses.
Child support is an essential right of a parent after separation and is usually given by the spouse whose income is higher, for the upbringing of their children. Contacting a reliable and efficient organisation or a law firm can help make the entire process easier and hassle-free for you. Professional assistance helps and goes a long way in expediting the proceedings. Maatouks Law group is a reputed law firm in the NSW region that can assist you with all of the queries and details regarding child support in Australia. Our long-standing experience of over 25 years, contacts and resources give us an edge in dealing with all legal cases. We understand the sensitivity involved in child-related cases and treat all our clients with compassion and respect. Our team is very friendly and courteous and can address all your concerns and queries efficiently.
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