The Australian Tax Office offers a variety of insights regarding the taxation of married couples. The most important point to keep in mind is that while determining your taxable income, both spouses' incomes must be included, including any sums paid as part of a couple's relationship property settlement or maintenance payments. For additional details on the tax repercussions of marriage in Australia, continue reading.
Since getting married may be a fulfilling event, many people dream of doing so their entire lives. However, one of the most challenging aspects of your life to manage is taxes. There are a few things you should be aware of regarding marriage and taxes in Australia before opting to get married.
If you're a part of a couple that gets married in Australia, you should be aware of how marriage will effect your tax position, what deductions are available for married couples, and whether there are any techniques to lower your income tax.
Tax and Marriage: Advice for the Newlyweds
Of course, rather than the tax ramifications that come with exchanging rings, every couple's "big day" will be defined more by flying champagne corks and countless speeches of dubious quality.
However, a general grasp of what it means to be a "spouse" for tax law's purposes might alter how some financial arrangements are approached, highlight potential problems, and enable clearer planning.
What "spouse" means in the tax code - The tax code broadly identifies a "spouse" as:
- another person, of any sex, who is engaged in a marriage or other legally recognized civil union, or
- if unregistered, really cohabitates in a home as a couple with another person (a de facto relationship).
Return of Post-Nuptial Taxes
Each partner in a couple is still required to file their own individual tax return each year.
Australia, unlike several other foreign tax jurisdictions, does not allow the use of "family" tax returns. However, in some sections of these tax forms, each will be compelled to give some specific information about their other half.
The Tax Office will need to know the time period throughout the income year when each person became a spouse, aside from a potential name change and a change of address for one or both members of the relationship.
Information on a spouse's taxable income, such as overseas income, distributions from a trust, reportable fringe benefits, and whether any government pensions or allowances have been paid, will also be required.
The information is used to determine eligibility for various government benefits that may be dependent on "family income" thresholds overall (see below), as well as potential eligibility for other rebates and offsets. Therefore, in order to ensure that the relevant entitlement and offsets are claimed, such information must be provided accurately in each spouse's tax return.
Personal property brought into the marriage
The ownership of a person's personal asset holdings remains the same after marriage.
For instance, listed shares that a partner 100% owned before getting married will still be held in that capacity (unless the individual decides to transfer their interests). Therefore, any capital gain or loss resulting from the sale of the shares will be included in the legal owner's assessable income (regardless of marital status).
The evaluation of franked dividends and entitlements to imputation credits follows the same pattern; once more, the owner will be solely responsible for making these determinations.
Co-Banking Account
When spouses open a joint bank account, the Tax Office often believes that the interest income will be split 50/50. Couples would therefore typically have a combined and equal right to the interest income from their joint account.
However, according to the Tax Office, there are some circumstances in which interest income from a shared bank account might be allocated to one partner in favour of the other. Whether the exemption completely holds true at the time when evidence suggests that one spouse is "beneficially entitled" to that interest will determine whether or not this is the case.
For instance, a proof will be needed if one partner made a larger initial financial contribution to the joint bank account than the other partner and they want the interest earned to be judged solely in their favour rather than equally (50/50) by both partners.
According to the Australian Taxation Office, pertinent evidence to indicate whether a spouse has a beneficial claim to the interest includes things like who contributed to the account and in what amounts, the nature of the contributions (such as whether or not the money is held on trust for a dependent), and whether or not one partner accessed the funds and any accrued interest for their own reasons.
Exemption For The Family Home As The Primary Residence
What's the Process for the Main Residence Exemption?
The majority of newlyweds strive for and dream of owning a family home.
Under the main residence exemption, the family home is often excluded from CGT.
If a home is later sold, any capital gain or loss attributable to the home's fluctuating value will be ignored. The dwelling qualifies for a complete exemption if it is used as a "primary residence" for the duration of the ownership period.
There are no set criteria for determining when a residence qualifies as the main residence in terms of that word. This depends on the pertinent details and is evaluated on a case-by-case basis.
But the Tax Office lists several things to think about, like how long the house has been occupied, where the mail is delivered, whether utilities are connected, and where one lives with their family.
Couples with various primary residences
It is common for one or both parties to enter a marriage with a home under their individual names.
Following their marriage, a typical situation would be for one spouse to move into the home of the other spouse and lease the latter's former residence.
When both partners enter a marriage with the main house that they separately own, special CGT regulations apply to the main residence.
The special rule asks each spouse to select one of the following options for the time when this occurs.
- Option A: Select just one home as their primary residence, or
- Option B: Declare each residence as the owner's primary residence.
Additionally, if option B is selected, the degree of the exemption for the time period will depend on the ownership stake the person has in the home.
Specifically:
- People who own more than 50% of the dwelling are eligible for an exemption for half of the time.
- The exemption is completely applicable for the duration where the interest is equal to or less than 50%.
- Therefore, depending on the choice each spouse choose, the primary home CGT exemption may be divided between residences.
Keep in mind that if a couple is constantly living away from one another, the specific regulations for spouses do not apply. One scenario might be if one partner accepts a one-year job offer in another city and purchases a new home there while the other partner continues to live in the old home. The new home is sold after the lease expires. Normally, the principal residence exemption would apply to the sale of this house.
When spouses have separate primary residences, the application of the main home exemption might be complicated. Ask for help from this office if you do.
Where A Tax Offset Is Determined By "Family" Income
Once a couple gets married, some entitlements and offsets—the private health insurance refund being one of them—may change.
The private health insurance rebate is a policy that provides premium discounts to entice Australians to get private health insurance. This can be claimed as an offset after the individual files their tax return or as a "upfront" benefit in the form of lower premiums.
The premium rebate is subject to an income test and is based on different income "tiers". The maximum rebate is 30%, and it phases out according to the person's income (you can ask this office for a detailed definition of what "income" means).
The amount of the insurance premium rebate for a person may fluctuate if they were married at the end of the previous year if they transition from "single" status to living as a couple (considered "family" for this rebate). Instead of single income divisions, family income tiers would be used.
Let's take the hypothetical future wife as an example, who is still unmarried and makes a respectable $140,000 per year. The income level will put her in the "tier 3" threshold, which means no rebate is payable (that is, 0%), assuming she has no other income for the purposes of the rebate.
However, the potential husband makes $90,000 annually, making him eligible for a 19.36% (as of April 1, 2014) discount on his "tier 1" private health insurance payments while unmarried.
The refund payable to each of them is set to "tier 2," or 9.68% of insurance premiums, if they are married before June 30, 2014, and have a combined income of $250,000.
Each spouse will experience various effects. The rebate for Mr Taxpayer will be decreased by around 10%, so if he had used his policy to claim the rebate entitlement in advance, he would have had to declare a private health insurance debt on his 2014 tax return.
This will be noted as an "excess private health decrease" in the notice of assessment. The roughly 10% rebate on Mrs Taxpayer's premium will be reimbursed as an offset and will be displayed on her notice of assessment, while she had previously been refused a rebate because of her previous income level.
Other tax offsets, including the Net Medical Expenses Offset, are similarly income-tested for families; however, this is being phased out.
Contributions of a Superannuation Spouse
If, for instance, a couple decides to have children and one partner quits their job to do so, the other spouse's super fund will receive a tax credit for superannuation contributions made on behalf of that spouse. Payments made on behalf of a spouse who is either not working or earning a low income (with assessable income of less than $13,800, including reportable fringe benefits and reportable employer super contributions) qualify for the offset.
With a maximum offset of $540, the offset claimant may be eligible to recover 18% on super contributions up to $3,000 in total. It should be noted that a spouse's contribution would be considered non-concessional and would be subject to the non-concessional ceiling for the contributing partner, which is $150,000 for 2013–14 and $180,000 for 2014–15.
May their issues be little ones.
There is always the chance that the contented home will eventually become the home of one or more aspiring taxpayers.
It's important to note that as of March 1, 2014, the Baby Bonus is no longer valid. However, it is important to take into account the current paid parental leave program and keep a watch on the current government's proposed, more generous paid parental leave program.
Tax Repercussions of Marriage for Couples in Australia
The arrival of spring also heralds the arrival of "wedding season." Numerous couples will be anticipating their upcoming weddings all throughout Australia, but it's unlikely that many of them have thought about the potentially significant financial repercussions of their new married status.
The good news is that we've put in the effort. Here is our comprehensive guide on marriage and taxes.
Marriage: The Basic Tax Repercussions
If you're married, you don't need to file a combined tax return (as happens in some other countries). Instead, each spouse's tax returns separately list the joint income.
You must indicate on your tax return that you are now married and report your spouse's annual taxable income.
Your joint income is taken into consideration for determining Family Assistance Office benefits, such as family tax advantages if you do not have private health insurance (you may be required to pay the Medicare levy surcharge if you are a high-earning couple).
Before filing your tax return, the information will need to be updated if you decide to alter your name. Online or over the phone are the two most convenient ways to complete that. When you do so, the ATO will need to confirm your identification, so you'll need documents like your birth certificate or marriage certificate. As in the past, you cannot simply note it on the front pages of your subsequent return to alert the tax office.
Are Wedding Gifts Tax Deductible? Tell Me How
If your guests decide to give gifts to a charity of your choice as wedding presents, they may be able to claim a tax deduction as long as the charity is listed as a Deductible Gift Recipient.
Before getting married, it is not uncommon for each side of a couple to have their own home. Normally, there is no CGT due when you sell your primary house. However, for the purposes of capital gains tax (CGT), spouses are only each allowed one principal residence exemption. If a couple each owns a primary residence, they must choose one of the following:
- choose a single house to receive the exemption.
- Divide the CGT exemption equally across the two homes.
Both residences will be completely exempt from CGT during the time before the pair is classified as a married couple, provided they meet the standards for the principal residence exemption. However, after a couple marries, they are only permitted one exemption, which may be split between the two residences.
Example:
In 2004, Susan acquired a home. After she married Roger in 2021, they moved into his home, which he had had since 2010, which he had purchased. She lived there till then. Their primary abode for CGT purposes was Roger's house. If Mary decides to sell her home, she will be responsible for paying CGT on any increase in value beginning in 2021, but she won't be responsible for paying CGT on any growth in value that occurred prior to her marriage to Roger.
Susan can choose from a variety of choices, though. It is best to start by asking your H&R Block tax advisor about the ramifications of capital gains.
Taxes And Same-Sex Couples
De facto partnerships and registered relationships are now recognized under the expanded definition of spouse. Your "spouse" is a different individual, whether they are of the same sex as you or not, who:
- is registered to be in a relationship with you under a specified state or territory legislation and is with you.
- resides with you in a true domestic partnership even though they are not legally married to you.
This implies that same-sex couples are now treated similarly to heterosexual couples when it comes to taxes. In instances like these, they are now governed by the same rules:
- a waiver or decrease of the Medicare levy
- Surcharge for the Medicare levy
- capital gains tax exemption for the primary residence
Guide To Taxes For Couples
This couple's tax guidance was created to assist you in deciding whether to disclose information about your spouse on your upcoming tax return. Continue reading to find out more about your responsibilities for this year.
Sharing a home? Engaged? Married? By virtue? To learn what being in a relationship implies for your tax return, see our couples tax guide.
Confusion frequently arises over who the ATO considers being a couple for tax reasons. But if you're familiar with the criteria, you may decide whether or not you need to include any more information on your tax return this year.
Do you have a spouse or a de facto partner in the eyes of the ATO?
You will either be required to include their tax information in your tax return or you will not be required to do so depending on the response to this query.
A spouse, de facto is not only reserved for those who are legally married in the perspective of the tax system.
There are two responses to which you need to give a positive response in order for someone (of either sex) to be considered your spouse or de facto partner:
- Are You Currently In A Relationship To Begin With?
- Second, do you live with that person as part of a domestic partnership or do you maintain separate living quarters?
If you answered yes to both of these questions, the government will treat that person as your spouse or de facto partner for tax reasons.
In addition, as soon as you get married, the ATO will treat your partner as your husband regardless of whether or not you want them to be.
What Does This Mean for Your Tax Duties?
There is no such thing as a combined tax return in Australia; each individual must complete their own tax return.
However, if you get married or have a partner in a domestic partnership, you are required to submit some of that person's tax information on your return as well.
This comprises:
- wages and salaries,
- Dividends,
- interest earnings,
- Rent received, and
- income with a foreign origin.
- If this is appropriate, you are required to include on both returns any child support payments that were made by either husband.
Is My Tax Refund Affected by This?
Once the marriage has been legally recognised, both partners' incomes are combined together for the purpose of assessing whether or not the couple is qualified for certain benefits, such as the Medicare Levy, private health rebates, family tax benefits, and childcare payments.
Here's an illustration:
- Mark and Julie start dating and eventually live together.
- Mark makes $70,000 annually compared to Julie's $100,000.
- Both lack private hospital insurance.
- Previously, Julie was required to pay a $1,000 Medicare Levy Surcharge on her tax return since her income was over $90,000.
- But now that she is married, we use the $170,000 in combined income that Julie and Mark earn. Julie's return rises by $1,000 because her income is below $180,000 and she is therefore exempt from paying the Medicare Levy Surcharge.
Important Points to Keep in Mind When Reading the Couples Tax Guide
Many individuals have the misconception that they can "forget" to include their spouse while submitting their taxes. This is completely unacceptable, and the ATO is equipped with highly sophisticated data matching algorithms that enable them to determine when a spouse is missing from a tax return.
If you fail to disclose information about your spouse, the Australian Taxation Office (ATO) may amend your tax return and perhaps apply financial penalties for inaccurate lodgements.
It is of the utmost importance that both you and your spouse have a solid understanding of the tax obligations that come along with being a part of a partnership.
If you are confused about whether or not you are required to include your partner's information on your tax return, you should enquire about it. Our team of highly knowledgeable accountants can quickly determine your responsibilities and assist you in ensuring that your return is complete and accurate.