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Advice for couples at tax time

Posted on 2 July 2021
Advice for couples at tax time

Money and Life
(Financial Planning Association of Australia)

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.

How does this affect my tax return?

There are some implications for your taxes, especially in the following areas.

Private health insurance rebate

The amount of rebate you qualify for is based on your income, so you might receive a different level of rebate 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.

If you have a spouse, the ATO will use your combined income to work out your Medicare levy surcharge. 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

There's also a Medicare levy reduction available to low-income earners. If you have a spouse and your family taxable 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. 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.

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