Tax and marriage
GJB's tips on nuptial know-how.

Every couple's "big day" will of course be marked more by flying champagne corks and numerous speeches of questionable quality, instead of the tax implications that go along with swapping rings.

Having a general understanding of what it means to be a "spouse" under tax law can change the approach taken to certain financial arrangements, clarify potential pitfalls and allow clearer planning.

Meaning of "spouse" under tax law
Broadly speaking, the tax law defines a "spouse" as:

  • another individual, of any sex, who is in a relationship registered under state or territory law (that is, married), or
  • if not registered, lives with another on a genuine domestic basis as a couple (a de facto relationship).

Some general tax implications from being a tax law "spouse" are as follows: 

Post-nuptial tax return
When tax time comes around, each partner in a couple still needs to lodge their own individual tax return.

There is no "family" tax return that can be used in Australia, unlike some foreign tax jurisdictions. However each will be required to disclose, in certain parts of these tax returns, some specific details of their other half.

Apart from a possible name change and a change of address for one or both in the couple, the Tax Office will need to know the period during the income year that each became a spouse.

It will also require, for example, information on taxable income for a spouse, such as foreign income, distributions from a trust, reportable fringe benefits and also if any government pensions or allowances have been received.

The details provided are used to work out certain government entitlements that may be based on overall "family income" thresholds (see below), as well as possible eligibility to other rebates and offsets. It is therefore critical that such information is completed in each spouse's tax return accurately to ensure that the correct entitlement and offsets are claimed. 

Personal assets taken into marriage
Getting married does not change the ownership of personal asset holdings held by an individual. 

For example, listed shares that were 100% owned by a partner prior to marriage will continue to be held in that capacity (unless the individual decides to transfer their interests). Any capital gain or loss arising from the disposal of the shares will therefore be included in the assessable income of the legal owner (regardless of marital status).

The same applies to the assessment of franked dividends and entitlements to imputation credits – again, this will be assessed fully in the hands of the owner.

Joint bank account
Generally, the Tax Office assumes a 50/50 split of interest income where spouses open a joint bank account together. In most cases, spouses would have a joint and equal entitlement to the interest income from their joint account.

The Tax Office has indicated however that interest income can be assigned to one partner in favour of the other in respect of a joint bank account in certain scenarios. This will depend on whether there is evidence to show that one spouse is "beneficially entitled" to that interest.

Main residence exemption for the family home
Click here to read the full article for definitions on how the main residence works with respect to exemptions and spouses with different main residences (pp 3-4).

Where "family" income determines a tax offset
Certain entitlements and offsets may be affected once a couple marries – a common offset being the private health insurance rebate.

The private health insurance rebate is a measure that encourages Australians to take up private health insurance by offering a reduction in premiums. This can be an "upfront" benefit by way of reduced premiums or can be claimed as an offset upon lodgement of the individual's tax return.

The rebate offered on premiums is income-tested and determined by specific income "tiers". The maximum rebate is 30% and phases out depending on the individual's income (consult this office for the exact definition of what constitutes "income").

In the case of individuals who move from "single" status to living as spouses (deemed "family" for this rebate), the level of rebate on insurance premiums in relation to an individual can change if a person had a spouse at year-end.  Family income tiers would apply instead of single income tiers.

Certain other tax offsets are also income-tested as a family unit, such as the Net Medical Expenses Offset, however this is being phased out.

Superannuation spouse contributions
A tax offset is available for superannuation contributions made on behalf of one spouse to the other spouse's super fund, should for example the couple decide to have children and one partner leaves paid employment to do so. The offset applies to contributions made on behalf of a non-working or low income-earning spouse (with assessable income of less than $13,800, which includes reportable fringe benefits and reportable employer super contributions).

The offset claimant may be entitled to claim 18% on super contributions up to $3,000, but with a maximum offset available of $540. Note that a spouse contribution would constitute a non-concessional contribution and will count towards the contributing partner's non-concessional cap (which is $150,000 for 2013-14 and $180,000 for 2014-15).

May your problems be little ones
Down the track, there is always the prospect of the happy household being home to one or more budding taxpayers-to-be.

It is worth noting that the Baby Bonus no longer applies from March 1, 2014.  Nonetheless, there is the incumbent Paid Parental Leave scheme to consider, and the proposed and more generous paid parental leave plan from the current government to keep an eye on.

There may be capacity however to receive the new Newborn Upfront Payment and Newborn Supplement as part of Family Tax Benefit part A (if eligible, and if certain conditions are met). Contact GJB on 02 9686 3130 for more details.

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