Tax Guide for Couples

You might be unsure of what to do with your taxes this year due to the new tax law. You may want to think about working with a CPA or an accountant if your situation is a little more complicated than usual.

If, however, you're just searching for some basic advice on how to file jointly as a married couple and intend to hire a tax preparer, continue reading!

This blog post will go over every step required when filing jointly in order to take full advantage of all deductions and credits.

There is a lot of misunderstanding around who the ATO classifies as a couple for the purposes of taxation.

Once you are familiar with the definitions, you may decide whether or not you need to include any more details on your tax return for this year.

Would you like to speak to a specialist? Book a complimentary discovery session by calling: (03)999 81940 or emailing team@klearpicture.com.au.

Do you have a de facto partner or spouse in the eyes of the ATO?

Depending on the response to this query, you will either need to submit their tax information on your tax return or not.

A spouse or de facto is not only reserved for those who are legally married in the perspective of the tax system.

There are two inquiries you must respond "yes" to in order for someone (of either sex) to be regarded as your spouse or de facto:

• Do you have a romantic partner?
• Do you share a home with that individual in a domestic partnership?

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 impact does this have on your tax liabilities?

In Australia, there is no such thing as a joint tax return; every individual is responsible for completing their own individual 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
• revenue of 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.

How can this possibly impact my tax refund?

As soon as you are regarded to be married, some benefit thresholds, such as the Medicare Levy, Private Health Rebates, Family Tax Benefits, and Childcare Payments, are dependent on the combined income of both spouses. These benefits include the Medicare Levy.

Consider the following example:

• Mark and Julie start dating and eventually live together.
• Julie makes $100,000 annually, whereas Mark makes $70,000.
• 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.

Do we have to file a joint tax return?

Simply put, no.

In certain nations, filing a joint tax return for a married couple or a "household" is the norm. However, Australia's taxes system has never included it.

Our tax system is based on an individual's taxable income, which takes into account all income, deductions, and offsets.

Therefore, there is neither a requirement nor an option for a joint tax return in Australia.

So why do my "spouse" and I have sections on my tax return?

Australian tax returns may only be filed by one person, although certain tax laws are based on the combined income of you and your spouse.

There are two primary sections to this act.

The first involves shared assets, and the second involves taxes and other financial incentives from the federal government.

Here is a typical situation. Consider a married couple who invests together in coastal rental property. They were fortunate enough to purchase the house outright. According to the ATO, they are equally owned.

The average weekly rental income from the property is $500, or $26,000 per year. All of that money is regarded as "income" for the couple. Additionally, they owe $6,000 in property-related charges. Thus, their annual net rental revenue is $26,000 less $6,000, or $20,000.

Given that each partner owns 50% of the property, they divide the $20,000 in half and report $10,000 each as net rental income on their tax forms.

But what if one spouse makes a lot more money than the other?

It starts to get interesting from here. It makes it logical to buy the property only in the name of the spouse with a lesser income in some couples where one partner earns more than the other.

This is due to the fact that your taxable income is used to offset the total tax you must pay on the rental revenue.

The tax due rises in direct proportion to taxable income. Therefore, investing in the name of the spouse with the lesser income results in a smaller taxable income and tax liability on any rental income received than if you divided it 50/50.

However, there are other elements to take into account when investing besides just your and your spouse's taxable income. To ensure you make the best financial decision for your situation, we advise you to first get detailed tax advice from your tax advisor.

Taxes and rewards from the government for married couples

Numerous taxes and incentive schemes are managed by the federal government. They compute them using a married or de facto couple's combined income.

Once a single person's annual salary exceeds $90,000, they are subject to an extra tax on their income if they do not have private hospital insurance. The levy accounts for a married couple's combined income. Up until the joint income exceeds $180,000, it does not apply.

For instance, Mary makes $100,000 a year and George makes $65,000, but neither has private hospital insurance. Mary would have had to pay the Medicare Levy Surcharge (1% or $1,000) on her annual tax return while she was unmarried.

However, because Mary and George have a combined income of $165,000, the levy is applied to that amount and Mary will no longer be responsible for the surcharge, which would have increased her tax refund by $1,000 a year.

We each have a house. Does that provide a challenge for taxes after marriage?

It might be. Since many Australians marry later in life, it is typical for both partners to be homeowners. However, following marriage, the tax classification of these assets may alter.

An illustration would be the tax ramifications of capital gains and marriage.

When you sell an asset, such as shares of stock or real estate, capital gains tax (CGT) is levied at your applicable marginal tax rate. Your "family home" or primary house is exempt from this tax, though. This implies that even if you make a $200,000 profit on the sale of your home, none of it will be taxed.

This exemption, however, only covers a "principal residence." A couple can only claim the CGT exemption for one home since, like an individual, they are only allowed to have one "principal residence" (if it is sold). The pair also has the option of splitting the CGT between the two properties.

Ask away if you have any more queries about how getting married will affect your taxes or what information you must submit on your tax return. Our knowledgeable staff of accountants can swiftly ascertain your duties and assist in making sure your return is accurate.

Do I need to disclose the income of my partner on my tax return?

The question "Did you have a spouse during [the financial year]?" seems to be particularly confusing for many young Australians.

What really is a "spouse," after all? Why is your relationship status so important to the Australian Tax Office (ATO)? How might filing your partner's income influence your tax return, furthermore?

We sought advice from professionals.

How is "spouse" defined by the ATO?

The ATO's official description is provided below:

• "an additional individual (of either gender) who is a member of your home;
• you took part in a relationship that was regulated by a statute of the state or territory in which you resided;
• despite the fact that you were not officially married to each other, I lived with you in a committed relationship as a couple on a regular basis."

Tim Loh, the associate commissioner for the ATO, sums it up like this: "A spouse isn't merely a husband or a wife when it comes to taxes. It also includes any living companion."

You don't have to provide your financial information. You must declare your relationship if you share a home and are in a relationship.

Dr Elizabeth Morton, a lecturer in taxation at RMIT, adds that this also applies to a recent partner you've lived with for a brief time (such as a few months spent apart between COVID lockdowns) or a previous partner (e.g. you broke up at some point in the financial year).

"You would mention the start and end date of the relationship in your tax return," she advises.

What information from your partner do you need?

After checking "yes" to the first question, you must also provide the name, date of birth, gender, and income of your spouse.

The ATO needs as much information as you can provide regarding that last point, including the amount of money they made, the amount of superannuation they paid, any investment or property losses, etc. It's not the end of the world if you can't access all of it, though.

Make sure you have a fair estimate if you find yourself in a situation where you are unable to obtain that information, advises Ms Morton. And if you're unsure what to do, you can always ask for advice.

An accountant or the ATO itself could offer that guidance. You can utilize the live chat feature on the ATO website or phone the helpline at (13 28 61).

Some good news: You won't be compelled to track down your awful ex to learn about their amazing efforts.

As long as you acted fairly and it was done in good faith, we don't penalize anyone, according to Mr Loh.

Has this been filed jointly?

Nope! It is absolutely not a joint tax return, claims Mr Loh.

"You will pay income tax individually on the money you earn, and your spouse will pay income tax on the income they earn."

Don't worry if your partner makes more money than you. You won't be obligated to pay for their expenses.

What is it used for then?

According to Ms Morton, "The Australian tax system taxes the individual." "It doesn't burden the family. Despite the fact that it acknowledges aspects of the family [in other ways]."

Your spouse's income is used by the ATO to determine whether:

• Your private health insurance is eligible for a rebate;
• the tax credit for seniors and pensioners is due to you;
• you are eligible for a decrease in the Medicare levy; or
• A Medicare levy surcharge is due.

What does that mean in terms of money?

The impact of all of this is difficult to pinpoint because each person's circumstances are unique. For your unique set of circumstances, you should always seek out independent, qualified guidance.

However, Ms Morton asserts that disclosing your partner's income is "not always a terrible thing."

According to her, "that might entail a somewhat increased tax requirement, whether through the Medicare levy or Medicare levy surcharge OR you could actually see a drop in the Medicare levy surcharge."

It largely relies on each person's general personal circumstances, private health insurance, and income level.

However, she does provide one illustration of how it might go well:

• "Consider a scenario in which one person made $100,000 a year and their partner made $50,000. Because the individual threshold is $90,000, that person will be personally liable for the Medicare levy fee.
• "The family barrier [of $180,000] is really below the combined income of $150,000, though. As a result, you won't be required to pay the fee that you otherwise would have."
• According to Mr Loh, failing to disclose your partner's income in certain circumstances can be equivalent to "leaving cash at the door."

Would you like to speak to a specialist? Book a complimentary discovery session by calling: (03)999 81940 or emailing team@klearpicture.com.au.

What happens if your partner's salary is not disclosed?

The most important thing, according to Ms Morton, is to not exclude anything. "Don't disregard it.

"Numerous data are available to the ATO. You can discover that your submission needs to be changed later, and you might run into issues as a result of facts you left off."

Making a false or misleading declaration on your tax return carries a variety of penalties, but according to Mr Loh, "the ATO is here to help."

"If anyone has any inquiries, we'd be pleased to respond. And, hey, just make sure you fix it or update it with us if you made a mistake."

What if you never discuss money with your partner?

If you and your partner have separate accounts, it could be awkward to disclose your entire income. Will they consider it to be too low? To much? Will it lead to conflict in the marriage?

In general, talking about money is a good thing. However, you don't have to start by looking at the figures. If you're hesitant to initiate the conversation, here are some topics.

Additionally, it's important to keep in mind that having more money doesn't make you more deserving or lovable if you're afraid of being criticized for having a low income.

Beyond tax season, these discussions can still be beneficial.

Do you have any debts that you should be aware of? What financial objectives are you and your partner pursuing? Do you and your partner have any future financial goals in mind?

These discussions may be difficult.

People frequently have nuanced sentiments regarding money, which can be difficult to communicate. But it's always a good idea to start by asking a few questions.