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.