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Marriage And Taxes

The Australian Tax Office provides a range of insights into how married couples are taxed. The key thing to remember is that the income of both spouses must be taken into account when calculating your taxable income, including any amounts received as part of a couple’s relationship property settlement or maintenance payments. Read more for more information on the taxation implications of being married in Australia.

Marriage can be a rewarding experience that many people dream of for their entire life. However, it is also one of the most complex aspects to navigate in your life with taxes. These are just some things you need to know about marriage and taxes in Australia before making any decisions about getting married. 

Some things you should know about marriage and taxes in Australia include how marriage will affect your tax situation, what deductions are available for couples who get married, and whether or not there are ways to save on income tax if you’re part of a couple who gets married.

Tax And Marriage: Tips On Nuptial Know-how

Of course, every couple’s “big day” will be marked more by flying champagne corks and numerous speeches of questionable quality instead of the tax implications that go along with swapping rings. 

Nevertheless, having a general understanding of what it means to be a “spouse” under tax law can change the approach taken to certain financial arrangements, clarify potential pitfalls and allow clearer planning.

Meaning of “spouse” under tax law – Broadly speaking, the tax law defines a “spouse” as:

  • another individual, of any sex, who is in a relationship registered under state or territory law (that is, married), or
  • if not registered, lives with another on a genuine domestic basis as a couple (a de facto relationship).

Post-nuptial Tax Return

When tax time comes around, each partner in a couple still needs to lodge their own individual tax return.

No “family” tax return can be used in Australia, unlike some foreign tax jurisdictions. However, each will be required to disclose some specific details of their other half in certain parts of these tax returns.

Apart from a possible name change and a change of address for one or both in the couple, the Tax Office will need to know the period during the income year that each became a spouse.

It will also require, for example, information on taxable income for a spouse, such as foreign income, distributions from a trust, reportable fringe benefits and also if any government pensions or allowances have been received.

The details provided are used to work out certain government entitlements that may be based on overall “family income” thresholds (see below), as well as possible eligibility to other rebates and offsets. Therefore, such information must be completed in each spouse’s tax return accurately to ensure that the correct entitlement and offsets are claimed.

Personal Assets Taken Into Marriage

Getting married does not change the ownership of personal asset holdings held by an individual.

For example, listed shares that were 100% owned by a partner prior to marriage will continue to be held in that capacity (unless the individual decides to transfer their interests). Any capital gain or loss arising from the disposal of the shares will therefore be included in the assessable income of the legal owner (regardless of marital status).

The same applies to the assessment of franked dividends and entitlements to imputation credits – again, this will be assessed fully in the owner’s hands.

Joint Bank Account

Generally, the Tax Office assumes a 50/50 split of interest income where spouses open a joint bank account together. Thus, in most cases, spouses would have a joint and equal entitlement to the interest income from their joint account.

However, the Tax Office has indicated that interest income can be assigned to one partner in favour of the other in respect of a joint bank account in certain scenarios. This will depend on whether the exemption fully applies for the period when evidence shows that one spouse is “beneficially entitled” to that interest.

For example, evidence will be required if one partner initially contributed a greater proportion (in dollar terms) to the joint bank account than the other partner and there is a desire to have the interest derived assessed in the hands of the primary contributor rather than jointly (that is, 50/50).

According to the Tax Office, relevant evidence to demonstrate whether a spouse has beneficial entitlement to the interest include such things as who contributed to the account, and in what proportions, the nature of the contributions (is the money held on trust for a dependant, for example), and if one partner accessed the funds and any accrued interest for their own purposes.

Main Residence Exemption For The Family Home

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How Does The Main Residence Exemption Work?

The ownership of a family home is something that most newly weds aspire to and work towards.

The family home is generally exempt from CGT under the main residence exemption.

A capital gain or loss arising from the changing value of a house would be disregarded if the dwelling is subsequently disposed of. A full exemption is available where the dwelling is treated as a “main residence” throughout its owned period.

As far as defining that term “main residence”, there are no specific rules as to when a dwelling is deemed to be the main residence. This is subject to the relevant facts and is considered on a case-by-case basis. 

However, the Tax Office outlines some factors to consider, which may include, but are not limited to, the length of time the dwelling is occupied, the address to which mail is delivered, connection of utilities and where one’s family resides.

Spouses With Different Main Residences

It is not unusual for one or both partners to come into the marriage already owning a property in their own names.

A common scenario would be where one spouse moves into the other spouse’s home and leases their former residence following their nuptials.

Special CGT rules apply in relation to the main residence where each partner comes to the marriage, each owning a main residence.

In simple terms, for the period where this occurs, the special rule requires each spouse to choose one of the following options:

  • Option A: Choose only one of the dwellings to be their main residence, or
  • Option B: Nominate the different dwellings as their respective main residences.

Further, if option B is chosen, the extent of the exemption for the period will depend on the individual’s ownership interest has in the dwelling.

Specifically:

  • Individuals who hold more than a 50% interest in the dwelling are allowed an exemption for half of the period.
  • Where the interest is equal to or less than 50%, the exemption fully applies for the period.

The main residence CGT exemption may therefore be split between dwellings depending on the option chosen by each spouse.

Note that the special rules for spouses do not apply if they are living permanently apart from each other. An example may be where one partner takes up an employment contract in another city for a year, and they buy another dwelling in that city, with the other partner staying in the original house. After the contract ends, the new dwelling is sold. The main residence exemption would typically apply on the sale of this dwelling.

The application of the main residence exemption can be complex where it involves spouses each having a different main residence. Consult this office if you if need assistance.

Where “Family” Income Determines A Tax Offset

Certain entitlements and offsets may be affected once a couple marries – a common offset being the private health insurance rebate.

The private health insurance rebate is a measure that encourages Australians to take up private health insurance by offering a reduction in premiums. This can be an “upfront” benefit by way of reduced premiums or can be claimed as an offset upon lodgement of the individual’s tax return.

The rebate offered on premiums is income-tested and determined by specific income “tiers”. The maximum rebate is 30% and phases out depending on the individual’s income (consult this office for the exact definition of what constitutes “income”).

In the case of individuals who move from “single” status to living as spouses (deemed “family” for this rebate), the level of rebate on insurance premiums in relation to an individual can change if a person had a spouse at year-end. Family income tiers would apply instead of single income tiers.

For example, while still single, say the prospective wife is on a good annual salary of $140,000. Assuming no other income for the purposes of the rebate, the income level will place her in the “tier 3” threshold, which puts her in an income range that means no rebate is available (that is, 0%).

However, the prospective husband earns $90,000 a year, which, while single, entitles him to a 19.36% (from April 1, 2014) rebate on his private health insurance premiums under “tier 1”.

If they marry before June 30, 2014, their combined income of $250,000 as a “family” means that the rebate available to each of them is set to “tier 2”, or 9.68% of insurance premiums.

The consequences for each spouse will be different. Mr Taxpayer’s rebate will be reduced by about 10%, which means if he has claimed the rebate entitlement up front through his policy, he will be required to incur a private health insurance debt in his 2014 tax return

This will be shown in the notice of assessment as an “excess private health reduction”. Mrs Taxpayer, on the other hand, will enjoy a rebate that was denied to her before due to her previous income level, with the approximate 10% rebate on her premium refunded as an offset that will be shown on her notice of assessment.

Certain other tax offsets are also income-tested as a family unit, such as the Net Medical Expenses Offset, however, this is being phased out.

Superannuation Spouse Contributions

A tax offset is available for superannuation contributions made on behalf of one spouse to the other spouse’s super fund, should, for example, the couple decide to have children and one partner leaves paid employment to do so. The offset applies to contributions made on behalf of a non-working or low income-earning spouse (with assessable income of less than $13,800, including reportable fringe benefits and reportable employer super contributions).

The offset claimant may be entitled to claim 18% on super contributions up to $3,000, but with a maximum offset available of $540. Note that a spouse contribution would constitute a non-concessional contribution and will count towards the contributing partner’s non-concessional cap (which is $150,000 for 2013-14 and $180,000 for 2014-15).

May Their Problems Be Little Ones

Down the track, there is always the prospect of the happy household being home to one or more budding taxpayers-to-be.

It is worth noting that the Baby Bonus no longer applies from March 1, 2014. Nonetheless, the incumbent Paid Parental Leave scheme is to consider, and the proposed and more generous paid parental leave plan from the current government to keep an eye on.

Marriage and Taxes: Tax Implications for Couples in Australia

Spring is upon us, and that means “wedding season” is with us too. Across Australia, thousands of couples will be looking forward to their forthcoming nuptials, and the chances are few of them will have given any thought to the potentially important tax consequences of their new married status.

The good news is we’ve done the hard work. Here’s our guide to all you need to know about marriage and tax.

Getting Married: The Basic Tax Implications

  • You don’t have to lodge a combined tax return if you’re married (as happens in some other countries). Instead, joint income is recorded separately in each spouses tax returns.
  • You need to show on your tax return that you now have a spouse and disclose his or her taxable income each year.
  • Your combined income is taken into account if you don’t have private health insurance (you may have to pay the Medicare levy surcharge –effectively an additional 1.5% tax – if you are a high earning couple) as well as when calculating Family Assistance Office benefits such as family tax benefits.
  • If you elect to change your name, the details will need to be updated before your tax return is lodged. The easiest way to do that is online, or you can do it by phone. You’ll need to verify your identity with the ATO when you do it, so you’ll need documents such as your birth certificate or marriage certificate. You cannot notify the tax office simply by noting it on the front cover of your next return, as used to be the case.

Tax Deductible Wedding Gifts? Show Me How

If your guests choose to make gifts to a charity of your choice as a wedding gift, they can claim a tax deduction for the gift provided it’s to a charity registered as a Deductible Gift Recipient

It is not unusual for each half of a couple to own to own their own home before they married.  Normally, you can sell your main residence without CGT. However, spouses are only entitled to one main residence exemption for capital gains tax (CGT) purposes between them. If both members of a couple each own a main residence, they must either:

  • select one residence for the exemption
  • apportion the CGT exemption between the two residences.

Provided the homes meet the requirements for the main residence exemption, they will both be wholly exempt from CGT for the period prior to the couple being treated as spouses. However, from the time the couple get married, they can only have one exemption, although this may be divided between the two dwellings.

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Example:

Susan bought a house in 2004. She lived in it until she married Roger in 2021, at which point they moved into his house, which he had owned since 2010. Roger’s house became their main residence for CGT purposes. If she chooses to sell her house, Mary will be subject to CGT on her house for any growth in value from 2021, but she will not have to pay CGT on any capital growth in the period before she married Roger.

However, there are a number of alternatives available to Susan. First, it is advisable to obtain advice from your H&R Block tax consultant on the implications of capital gains.

Same-Sex Couples And Tax

The definition of spouse has been extended so that both de facto relationships and registered relationships are now recognised. Your ‘spouse’ is another person (whether of the same sex or opposite sex) who:

  • is in a relationship with you and is registered under a prescribed state or territory law
  • although not legally married to you, lives with you on a genuine domestic basis in a relationship as a couple.

That means that people living in same-sex relationships are now treated in the same way as heterosexual couples for tax purposes. They now fall under the same rules in areas such as these:

Tax Guide For Couples

We wrote this tax guide for couples to help you determine whether you need to include your partner’s information on your next tax return. Read on to learn more about the obligations you have this year.

Living together? Engaged? Married? De facto? Read our couples tax guide to find out what being in a relationship means for your tax return.

Who the ATO defines as a couple for tax purposes is a common cause of confusion. However, once you’re familiar with the definitions, you can determine what, if any, extra pieces of information you need on your tax return this year.

Do You Have A Spouse Or De-facto Partner (In The ATO’s Eyes)?

The answer to this question determines if you need to include their tax information on your tax return.

In the eyes of the tax system, a spouse or de facto is not just reserved for someone who is legally married.

For a person (of either sex) to be considered your spouse or de facto, there are two questions you need to answer “yes” to:

  • First, are You In A Relationship?
  • Second, do you live with that person as a couple in a domestic relationship?

If you answer yes to both questions, that person is your spouse or de facto for tax purposes.

In addition, if you are married, your partner is automatically considered to be your spouse for tax purposes.

How Does This Affect Your Tax Obligations?

In Australia, each person fills out their own tax return; there is no such thing as a joint tax return.

However, once you have a spouse or de facto, you must include some of their tax information on your return as well.

This includes:

  • Salary and wage income,
  • Dividends,
  • Interest income,
  • Rental income, and
  • Foreign source income.
  • In applicable, you must include child support payments either spouse makes on both returns.

How Can This Affect My Tax Refund?

Once you are defined as having a spouse, certain thresholds for items such as Medicare Levy, Private Health Rebates, Family Tax Benefits and Childcare payments are calculated on the combined income of both spouses.

Here’s an example:

  • Julie and Mark start a relationship and move in together.
  • Julie earns $100,000 per year, and Mark earns $70,000.
  • Neither has private hospital cover.
  • Previously, as Julie’s income was above $90,000, she was liable to pay $1,000 of Medicare Levy Surcharge on her tax return.
  • However, now that she has a spouse, we use Julie and Mark’s combined income of $170,000. As it’s below $180,000, Julie no longer has to pay any Medicare Levy Surcharge and her refund increases by $1000.

Tax Guide for Couples – Important Point to note

Many people think they can just “skip” adding their spouse to their tax return. This is a big no-no, and the ATO has very sophisticated data matching techniques to work out when a spouse is missing on a tax return.

If you don’t fill out your spouse details, the ATO could amend your tax return and even issue financial penalties for incorrect lodgements.

Therefore, it’s important to ensure you and your partner are aware of the tax obligations that come with being in a relationship.

If you’re not sure whether you need to include your partner on your tax return, just ask! Our expert team of accountants can quickly determine your obligations and help ensure you get your return right.

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