Lodge it or lose

Many families, including those of SME owners, receive Family Tax Benefit (FTB). It is divided into FTB Part A and FTB Part B. As with many social security benefits, Family Tax Benefit is (unfortunately) linked with the tax system.

Complications are inevitable.

Generally, people may be eligible for FTB Part A if they have:

• a dependent child aged under 16; or
• a dependent child aged 16–20 years who: (i) has completed a Year 12 or equivalent qualification, (ii) is undertaking full-time education or training leading to a Year 12 or equivalent qualification, (iii) has been granted an exemption from this requirement; or
• a dependent full-time student aged 21–24; or
• require care 35% of the time; and
• income under a certain amount. People may not be eligible for FTB Part A if, for example, their child has a yearly income of $13,010 or more.

Family Tax Benefit Part B is an extra payment for single parents and families with one main income to help with the costs of raising children. FTB Part B is limited to families where the primary earner has an adjusted taxable income of $150,000 or less per financial year.

Adjusted taxable income includes taxable income, adjusted fringe benefits, tax-free pensions, foreign income that is not subject to Australian tax, net rental property losses, and reportable superannuation contributions less any child maintenance paid to support a child from a previous relationship. No wonder accountants often get involved in working all this out!

Because of the links with tax system, the Government needs to know, among other things, FTB recipients’ taxable incomes. To this end, the Minister for Families, Housing, Community Services and Indigenous Affairs, Jenny Macklin, recently said that, following legislative changes, Australians receiving FTB who do not lodge their 2008-09 tax returns by the end of January 2011 will face temporary payment suspension of their FTB or cancellation of it for a “persistent failure to lodge”.

The Minister said it is estimated that around 45,000 families had not lodged an income tax return for 2008-09.

The Family Assistance Office (FAO) has begun calculating the debt owed by families yet to lodge their 2008-09 tax returns and will send notification letters. Families have 75 days grace from the date of the letter to either lodge their tax return or pay the non-lodger debt in full before FTB payments are suspended. A non-lodger debt consists of the entire FTB amount a family has been paid for the period they have not filed a tax return.

Importantly, families who are not required to lodge a tax return need to get in contact with the Family Assistance Office to inform them of their status.

As part of its changes, the Government also introduced what is called a “three strike rule” for families who persistently fail to lodge their tax returns. Under the rule, the third failure to lodge their tax return will result in cancellation of their FTB without a further grace period.

The Minister said that, under the three strike rule, approximately 2,300 people would miss out on their FTB entitlement with effect from November 23, 2010.

Lodging tax returns can be a “pain” for many people, but given the use to which tax return information is now put, failure to lodge can have more consequences than many might think.

Terry Hayes is the senior tax writer at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions .

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