In 2022 Tax Tips

Advice For Couples At Tax Time

Tax time can be stressful for couples, especially if they haven’t prepared ahead of time. This guide is meant to provide some helpful advice to make the process smoother. By following these tips, you can make tax season easier on yourselves and avoid any potential headaches. Taxes are already confusing enough – there’s no need to add more stress to the equation! So read on for some advice on how to make tax time less daunting.

Tax time can be stressful for couples, especially if they’re not prepared. So here are some tips to help make the process a little bit easier. First, make sure you have all of your paperwork in order. This includes your W-2s, 1099s, and any other relevant documents. Next, decide who is going to do the filing. 

If you both want to do it, decide who will do what. Finally, be proactive about getting your refund. Start checking the status of your return as soon as you can so that you can get your money back as quickly as possible. following these tips should help make tax time less stressful for couples and ensure that everything goes smoothly.

Advice For Couples At Tax Time

Unsure how your relationship status affects your taxes? We’ve made it simple with our couple’s guide to tax.

If you’re newly married, engaged or living with your partner, you might not be aware that there are some implications for your taxes.

In Australia, you’re not required to lodge a combined tax return with your spouse each year. Instead, you need to declare your spouse’s taxable income on your individual tax return.

The Australian Taxation Office (ATO) uses your joint income to work out whether:

  • you’re entitled to a rebate for private health insurance (and how much)
  • you need to pay the Medicare levy surcharge
  • you’re entitled to a Medicare levy reduction
  • you’re entitled to the seniors and pensioners tax offset.

So, first things first, how do you know if you have a ‘spouse’ in the ATO’s eyes?

Do I Have A Spouse Or De Facto Partner?

As far as the ATO is concerned, 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
  • although not legally married to you, lived with you on a genuine domestic basis in a relationship as a couple.”

You must declare all of the taxable income your spouse receives in your return, including:

  • salary and wages
  • dividends
  • interest
  • rental income
  • foreign-source income
  • pensions and child support payments.

Private Health Insurance Rebate

The amount of rebate you qualify for is based on your income, so you might receive a different rebate level as a couple than you did as an individual. You can check the rebate rates and income thresholds here.

Medicare Levy Surcharge

High-income earners who don’t have private patient hospital cover are charged a Medicare levy surcharge.

The ATO will use your combined income to work out your Medicare levy surcharge if you have a spouse. It’s calculated as a percentage of your income (up to 1.5%) and is payable in addition to the Medicare Levy.

You may need to pay the Medicare levy surcharge if you don’t have private patient hospital cover and your income is over:

  • $90,000 for singles
  • $180,000 for families.

If you’ve recently gained a spouse for tax purposes and you don’t have private patient hospital cover, make sure to check whether your combined income puts you over the income threshold. Taking out private patient hospital cover will mean you don’t need to pay the surcharge – and you’ll be covered in case of an emergency.

Medicare Levy Reduction

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There’s also a Medicare levy reduction available to low-income earners. So, for example, if you have a spouse and your taxable family income is equal to or less than $48,092, you might be eligible for a reduction.

Combining Your Homes?

Something that’s often overlooked when moving in with a spouse is the way it affects the capital gains tax (CGT) exemption on your main residence. For example, if you both owned and lived in your own homes before moving in together, or you’re in an established relationship but lived separately during the year; and you plan to sell one or both of the properties, there could be CGT implications. Working out your CGT obligations can be tricky, so seek advice from a tax professional when preparing your return.

If you’re still not sure whether you need to include your spouse’s details on your return, seek advice from a tax agent or speak to the ATO. If you leave your spouse out, the ATO could amend your tax return, and there could even be financial penalties.

Marriage and Taxes: Tax Implications for Couples in Australia

Spring is upon us, which means “wedding season” is also with us. 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. Read more about deductible gift recipients.

Merging Two Homes Into One? Look Out For Capital Gains Tax

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.

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:

  • Medicare levy reduction or exemption
  • Medicare levy surcharge
  • main residence exemption for capital gains tax

Do I Have To Declare My Partner’s Income On My Tax Return?

You know what that means: it’s time to gather all your faded, crumpled-up receipts and furrow your brow at your tax return for so long you get a headache.

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. But, 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?

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?

calculator financial chart financial

“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 the 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. Then, 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. So 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. 

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