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Tax Guide for Couples

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    With the new tax law, you may be wondering what to do with your taxes this year. If your situation is a little more complicated than average, you might consider hiring a CPA or an accountant. 

    However, if you're just looking for some general guidance on how to file jointly as a married couple and plan to pay someone else to prepare your taxes, then read on! 

    This blog post will walk through all of the steps necessary when filing jointly in order to get the most out of deductions and credits possible.

    Who the ATO defines as a couple for tax purposes is a common cause of confusion. 

    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:

    1. Are you in a relationship?
    2. 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?

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    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.

    Getting Married and Taxes: What you need to know for your next tax return

    Marriage is an exciting and joyful time, but when it comes tax and marriage, it’s also a source of confusion amongst taxpayers in Australia. 

    At Etax, prospective newlyweds often ask us about the tax implications of getting married. 

    Often, they want to know whether a joint tax return is needed when their relationship status changes from single or de facto to married.

    Below, we cover “joint tax returns” as well as other common marriage and tax related questions.

    Do we need to submit a joint return?

    In short, no.

    The idea of a joint tax return for a married couple or for a “household” is common in some countries. However, it has never been a feature of Australia’s taxation system. 

    Our tax system is based on the taxable income of the individual, after factoring in all income, deductions and offsets. 

    That means that in Australia, there is no need for (and no option for) a joint tax return.

    Well, why are there sections about my “spouse” on the tax return then?

    Australian tax returns might be only for the individual, but there is some tax legislation which is based on the joint income of you and your spouse. 

    This legislation separates into two main areas. 

    The first is to do with shared assets, and the second is to do with Federal Government levies and incentives.

    Here’s a common scenario. Take the example of a married couple who jointly purchase an investment property on the coast. Through some good fortune, they bought the home outright. In the ATO’s eyes they share 50/50 ownership.

    The property generates a rental income on average of $500 a week or $26,000 per year. That money is all considered “income” for the couple. They also have a total of $6,000 of expenses for property. Which leaves their net property income for the year as $26,000 minus $6,000 (or $20,000).

    As each partner owns 50% of the property, they split that $20,000 in half and include $10,000 each on their tax returns as net rental income.

    But what if one partner earns significantly more than the other?

    Here’s where it gets interesting. In some relationships where one partner earns more than the other, it makes sense to purchase the property in only the lower earning spouses name.

    That’s because the total tax you have to pay on the rental income is calculated against your taxable income. 

    The higher the taxable income, the higher the tax payable. So, by investing in the name of the lower-earning spouse, the taxable income and tax payable on any rental income earned is lower than if you split it 50/50.

    However, when investing there are more factors to consider than just the taxable income of you and your spouse. We recommend your tax agent gives you detailed tax advice before you decide to ensure you make the right financial choice for your circumstances.

    Government levies and incentives for married couples

    The Federal Government administers many levies and incentive programs. They calculate these based on the joint income of a married or defacto couple.

    Example: Medicare Levy Surcharge

    An additional charge is levied on the income of singles who don’t have private hospital insurance, once they earn above $90,000 per year. For a married couple, the levy takes into account their joint income. It does not apply until the joint income is above $180,000.

    For example, Mary earns $100,000 per year and George earns $65,000 per year and neither have private hospital cover. While she was single Mary would have been charged the Medicare Levy Surcharge (1% or $1,000) on her tax return each year.

    But, as a married couple, the levy applies to Mary and George’s joint income of $165,000 and Mary will no longer pay the surcharge which will boost her tax refund by $1,000 per year.

    We both own homes. Is that a problem for tax after marriage?

    It could be. As more Australians get married later in life, it is common for both members to own a home. However, the tax treatment of these assets can change after marriage.

    Example: Capital gains and the tax implications of getting married

    Capital gains tax (CGT) is tax at your marginal tax rate that applies when you sell an asset like property or shares. However, your main residence or “family home” is exempt from this tax. This means that if you sell your home for $200,000 profit, none of that contributes to your taxable income.

    However, this exemption only applies to a “main residence”. And a couple, like an individual, can only have one “main residence” so they can only claim the CGT exemption for one home (if it is sold). Alternatively, the couple can choose to apportion the CGT between the two properties.

    If you still have questions about the tax implications of getting married or what you need to include on your tax return, just ask! Our expert team of accountants can quickly determine your obligations and help ensure you get your return right.

    Do I have to declare my partner's income on my tax return?

    For many young Australians, there's one question in particular that seems to cause a bit of confusion: "Did you have a spouse during [the financial year]?"

    I mean, what exactly is a 'spouse'? Why does the Australian Tax Office (ATO) care so much about your relationship status? And in what ways can declaring your partner's income affect your tax return?

    We went to the experts for some answers.

    How does the ATO define 'spouse'?

    Here's the official description from the ATO:

    "Your spouse includes another person (of any sex) who:

    • you were in a relationship with that was registered under a prescribed state or territory law [or]
    • although not legally married to you, lived with you on a genuine domestic basis in a relationship as a couple"

    Basically, as ATO assistant commissioner Tim Loh says: "In tax terms, a spouse isn't just a hubby or a wife. It also includes [a partner] you live with."

    It doesn't matter if you don't share your finances. If you're in a relationship and you're living under the same roof, you gotta declare it.

    Dr Elizabeth Morton, a lecturer in taxation at RMIT, notes this also includes a relatively new partner who you've lived with for a short period (e.g. a few months of isolating together during COVID lockdowns) or a partner you used to live with (e.g. you broke up at some point in the financial year).

    "In your tax return, you would put the start and end date of the relationship," she says.

    What info do you need from your partner?

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    Once you've ticked 'yes' on that first question, you'll also need to include your spouse's name, date of birth, gender and income.

    The ATO would like as much info as you can get on that last point: what they earned, what they paid in super, any losses they had in investments or property, etc. But if you can't get access to all of it, it's not the end of the world.

    "If you're in a position where you simply cannot get that information, ensure you've got a reasonable estimate," Ms Morton says. "And you can always seek advice if you don't know what to do."

    That advice could come from an accountant or the ATO itself. You can call the helpline on 13 28 61 or use the live chat on the ATO website.

    Some good news: no-one's going to force you to chase down your terrible ex for info on their super contributions.

    "We don't penalise anyone if it's an incorrect estimate — as long as you acted reasonably and it's in good faith," Mr Loh says.

    Is this a joint tax return?

    Nope! "It's not a joint tax return whatsoever," Mr Loh says.

    "Your spouse will pay income tax on the income that they earn, and you will separately pay income tax on the income that you earn."

    Translation: don't stress if your partner earns more than you. You're not going to be responsible for footing their bill.

    So… what's it for then?

    "The Australian tax system taxes the individual," Ms Morton says. "It doesn't tax the family unit. Although it does recognise elements of the family [in other ways]."

    The ATO uses your spouse's income to work out whether:

    • you are entitled to a rebate for your private health insurance;
    • you are entitled to the seniors and pensioners tax offset;
    • you are entitled to a Medicare levy reduction; or
    • you must pay Medicare levy surcharge.

    What does that mean for your $$$?

    It's hard to say exactly what effect this all has because everyone's situation is so different. You should always seek independent, professional advice for your own personal circumstances.

    But, generally speaking, Ms Morton says declaring your partner's income is "not automatically a bad thing".

    "It could mean a slightly greater obligation for tax — whether through the Medicare levy or Medicare levy surcharge OR you could actually see a reduction in the Medicare levy surcharge," she says.

    "It really depends on the level of income, private health coverage and the general personal circumstances of each person."

    She does give one example, however, of how it could work out:

    "Say an individual earned $100,000 a year, and their partner earned $50,000. Individually, that person is going to be liable for the Medicare levy surcharge [because the individual threshold is $90,000].

    "However, looking at the combined income of $150,000, that is actually below the family threshold [of $180,000]. That means you won't be paying that surcharge that you would have had to pay as an individual."

    Mr Loh says that, in situations like this, not declaring your partner's income can be like "cash left at the door".

    What happens if you don't declare your partner's income?

    "The biggest thing is: don't just put nothing," Ms Morton says. "Don't ignore it.

    "The ATO has access to lots of data. You could find that the submission you've done might be amended later and you could face problems because you've omitted information."

    There are varying penalties for making a false or misleading statement on your tax return, but Mr Loh says "the ATO is here to help".

    "If people have questions we're more than happy to answer them … And look, if you made a mistake, just make sure you revise it or amend it with us."

    What if you and your partner never talk about money?

    If you and your partner have separate finances, revealing your full income might be an uncomfortable prospect. Will they think it's too low? Too high? Will it create tensions in the relationship?

    Generally speaking, it's healthy to talk about money. But you don't need to dive straight into the numbers. Here are some conversation-starters if you're nervous about taking that first step.

    And if you're worried about being judged for a low income it's worth remembering having more money doesn't make you more worthy or lovable.

    It can also be useful to continue these conversations beyond tax time.

    Are there any debts you should know about? What financial goals are you both working towards? Does your partner have any expectations about shared finances down the track?

    These might be tough conversations

    People often have complex feelings about money and that's not always easy to share. But asking a few questions with good intentions is a great first step. 

    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. ... In applicable, you must include child support payments either spouse makes on both returns.

    High Earners With Similar Incomes

    Couples who jointly earn between $622,050 and $1,036,800 in the 2020 tax year will pay higher taxes if they marry. This is because the 37% federal tax bracket for married couples filing jointly is not twice as large as the tax bracket for unmarried individuals.

    In the vast majority of cases, you'll save money by filing jointly — especially if one spouse works and the other doesn't, or one spouse out-earns the other significantly. ... If one spouse makes more than the other, combining your incomes could bring the higher earner into a lower tax bracket.

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