Michael Forer
Technical

The benefits keep on coming: Family Tax Benefit Part-A

By Michael Forer, Technical Services Consultant

The benefits of receiving Family Tax Benefit Part A (FTB-A) keep getting better. The additional entitlements for receiving even just $1 of FTB-A make it essential for financial planners to review the eligibility of families close to the thresholds.

The family income thresholds for FTB-A are as follows:

Number of Children
0 -17 years old
Number of children 18-24 years old
Nil One Two Three
Nil - $102,249 $113,978 $126,607
One $100,801 $112,530 $125,159 $137,788
Two $111,082 $123,711 $136,340 $148,969
Three *$122,263 *$134,892 *$147,521 *$160,150

* Income Limit is higher than stated for two or three children aged 13-15.

The Government fiscal stimulus package announced in October 2008 included a payment of $1,000 per child for families receiving FTB-A. In most cases this payment was received in December but for those families who receive FTB-A at the end of the year, the payment will be received after their tax return has been lodged.

The Education Tax Refund is another benefit that is available to families receiving FTB-A. The Education Tax Refund allows eligible families to claim a 50 per cent refund every year for key education expenses up to:

  • $750 for each child undertaking primary studies (maximum refund of $375 per child, per year); and
  • $1,500 for each child undertaking secondary studies (maximum refund of $750 per child, per year).

Parents are also eligible if they have children in primary or secondary school who would be eligible children for FTB-A purposes, but for the fact that the child receives certain payments or allowances such as Youth Allowance, Disability Support Pension or ABSTUDY Living Allowance.

The Education Tax Refund will apply to some of the most common back-to-school items, including:

  • laptops;
  • home computers and associated costs;
  • home internet connections;
  • printers;
  • education software;
  • trade tools for use at school;
  • school text books; and
  • stationery.

Where a family has educational costs in excess of the refund limit, these costs can be carried over to the next financial year.

Now the February 2009 fiscal stimulus has made FTB-A even more attractive via the Back to School Bonus.

This involves a once-off, up-front bonus of $950, paid to families eligible for FTB-A on 3 February 2009, for each eligible child of school age (aged 4 to 18 on 3 February 2009).

Case Study

Compare the two families below who are almost identical. Both families have one child in secondary school and one child in primary school. Family income is also the same except Family 2 have a Salary Sacrifice arrangement in place, whereby Paul sacrifices $2,000 p.a. into his superannuation fund.

  Family 1 Family 2
Parents Simon (41) & Rhonda (41) Paul (40) & Kylie (42)
Children Travis (12) & Claire (9) Rachel (12) & Matthew (9)
Assessable Family Income $112,000 $110,000
Family Tax Benefit Part A threshold $111,082 $111,082
Family Tax Benefit Part A entitlement $0 $324.50
October Fiscal Stimulus Package Bonus entitlement $0 $2,000
February Back to School Bonus $0 $1,900
Education Tax Refund entitlement $0 $1,125*
Total entitlements $0 $5,349.50

* Through the Education Tax Refund, Paul & Kylie are able to claim 50 per cent of the cost of a $1,500 laptop computer they bought for Rachel (a refund of $750). They will also be able to claim back on Matthew’s education software and school textbooks up to the value of $750, receiving a refund of up to $375. Therefore, the salary sacrifice arrangement implemented by Family 2 has resulted in the family receiving additional benefits of $5,349.50.

What do advisers need to do:

  1. Review clients Family Tax Benefit Part A eligibility.
  2. Consider strategies to make families eligible for Family Tax Benefit Part A if not currently eligible. (Remember, Salary Sacrifice contributions are not included in the income test for Family Tax Benefit for the 2008/09 year. However this will change from 1 July 2009 so this strategy will only be applicable for this financial year.)
  3. Remind clients that they will need to keep all receipts for education expenses so that these may be claimed in their tax return.