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Ruling

Subject: Income test for a dependant

Question 1

Is it your child's adjusted taxable income (ATI) only after they turned 21 that is relevant in determining if they are still a dependant for medical expenses tax offset purposes?

Answer

Yes.

Question 2

Is $1,786 the relevant ATI amount when determining if your child is still a dependant for medical expenses tax offset purposes for the period between 1 January 2012 and 30 June 2012?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant Facts and Circumstances

Your child turned 21 in 2012.

Your child is a full time student.

You maintained the child for the full year.

Relevant Legislative Provisions

Income Tax Assessment Act 1936 Subsection 159P(4)

Reasons for decision

Section 159P of the Income Tax Assessment Act 1936 (ITAA 1936) provides that a tax offset is allowable to a taxpayer whose net medical expenses (that is, medical expenses less any amount paid or payable by Medicare or a private health fund) in the year of income exceed a certain threshold.

To qualify for the tax offset the medical expenses must be paid by you in respect of yourself or your dependant.

The amount of the tax offset is calculated as 20% of the excess of net medical expenses over the threshold of $2,060 for the 2011-12 income year.

Subsection 159P(4) of the ITAA 1936 defines 'dependant' to include:

· your children who were less than 21 years of age regardless of their income

· a student under 25 years who you maintained and whose ATI was less than $282 plus $28.92 for each week you maintained them (or $1,786 if you maintained them for the whole year.

In your case, your child turned 21 in 2012. Therefore as your child is 'a student under 25 years' dependant for a portion of the year, it is only their ATI for this period that is relevant. That is, it is only her ATI between 1 January 2012 and 30 June 2012 that is relevant in determining whether your child is a dependant for this period.

ATI is calculated by the total of the following amounts:

· taxable income

· reportable superannuation contributions

· total net investment loss, that is, from financial investments (shares, interests in managed investment schemes (including forestry schemes), rights and options, and like investments), and from rental properties

· adjusted fringe benefits, ie reportable fringe benefits adjusted down for FBT paid by the employer

· income from certain tax-free pensions and benefits from Centrelink or Veterans' Affairs

· target foreign income, ie any income, payment or benefit received from a foreign source that is tax exempt in Australia

· minus the annual amount of any child support/child maintenance the taxpayer pays.

If your child's ATI is less than $X, then they are still regarded as your dependant.

Where your child does not fall into any of the categories of dependant once they turned 21, you are not entitled to a medical expenses tax offset for expenses you incurred for your child from 1 January 2012.

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