Denis Cummins

What You Should Know About Tax and Accounting for Wards and Dependents

A photo of a boy with his guardian

When an individual, often referred to as a “dependent” or “ward of court,” is placed under the control or protection of a guardian or a court due to being a minor or legally incapable of managing their affairs, there are significant implications for tax and accounting. That is exactly what we’re going to discuss today. So, if you have questions or concerns about wards accounting in Camden, Narellan or any part of New South Wales, scroll down to learn a bit more about this important matter.

Let’s Define Wards & Dependents First

In Australia, a dependent or ward is a person who is under the legal protection or guardianship of another individual, organisation or court typically due to age, disability, or other circumstances. When you are appointed as a guardian, you must manage your ward’s finances responsibly. There’s no other way about it: it is, indeed, a crucial responsibility that requires proper knowledge & careful attention to detail.

Tax Implications of Having a Ward or Dependent

If you’re a legal guardian, you may be eligible for certain tax benefits. But you may also need to tackle complicated tax-related processes if your ward has income-generating assets or investments that exceed the limit set by the ATO. 

Filing Status and Exemptions

Guardians may claim certain tax benefits and offsets. However, the specific tax benefits and implications will depend on the individual circumstances of the ward or dependent, such as their age, income, and disability status. Here are some tax benefits available for guardians of wards or dependents in Australia:

  • Family Tax Benefit Part A: It is available to guardians or approved care organisations for each child in their care once they meet the eligibility criteria around income and residency.
  • Family Tax Benefit Part B: Similar to Family Tax Benefit Part A, this is subject to specific requirements. It may be granted to single parents or the lower-income earner in a couple.
  • Rent Assistance: Guardians receiving Family Tax Benefit may also be eligible for Rent Assistance payments. Make sure to check the eligibility requirements.

Tax Rates 

In Australia, tax brackets are on a progressive scale, with higher tax rates given to those with higher taxable income. Having wards or dependents can lower your taxable income and potentially move you into a lower tax bracket. It pays to explore that possibility if you have a child or adult loved one in your protection. 

Income Tax

If your ward has income-generating assets or investments, you, as the guardian, must ensure that all income is correctly reported to tax authorities. Consider interest from savings accounts, dividends from stocks, and any other forms of your ward’s income. 

You may need to manage your ward or dependent’s tax affairs, such as lodging tax returns and responding to any queries from the ATO. You may also have to file a separate tax return for your ward if their income exceeds thresholds. If they have capital gains or property sales, you must meet the withholding tax requirements on your ward’s behalf. These may include getting a clearance certificate from the ATO.

A Guardian’s Accounting Responsibilities

Managing a ward’s finances is not a walk in the park. More often than not, it involves comprehensive accounting tasks, such as:

  • Detailed Record-Keeping: You must keep detailed records of all financial transactions related to your ward’s assets. This includes income received, expenses paid, and investments made. It’s crucial for tax purposes and reports to the court or supervisory bodies overseeing the guardianship.
  • Annual Financial Reporting: Many jurisdictions require guardians to prepare and submit detailed annual accountings to the court. These reports must show how the ward’s funds were managed and used over the reporting period, providing transparency and ensuring the guardian is acting in the best financial interest of the ward.
  • Estate and Trust Management: In cases where estates or trusts are involved, you might need to manage these entities under the guidance of the court. Your responsibility as a guardian may include filing the necessary estate tax returns and managing distributions in the most tax-efficient way.

The Role of Professional Advisors

Given the complexity of tax laws and accounting practices related to managing a 

dependent or ward’s finances, guardians often benefit from the expertise of tax professionals and accountants. Their expertise is invaluable in navigating the intersecting realms of guardianship, tax, and financial management in Australia.

So, if you’re a guardian worried about wards accounting and other matters that involve tax and your dependents, don’t hesitate to seek expert guidance. The role of tax & accounting professionals is critical: they help protect the ward’s financial interests while ensuring the guardians fulfil their legal and fiduciary duties effectively.

Contact Dennis Cummins for help navigating tax and accounting for your wards and dependents in Narellan, Camden, Harrington Park & Campbeltown, NSW.

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