I’m sure the last thing you’re thinking about when you move in together or are getting married are the tax implications but for those of you lovebirds looking at taking this next big step in your relationship it’s important you have a general understanding of what it means to be a “spouse” under tax law because that can change the approach taken to certain financial arrangements, clarify any potential pitfalls and give you a heads up on what sort of financial information you will need to share with each and the tax office.
Meaning of “spouse” under tax law
Tax law is way ahead of many parts of our society in that 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)
Although there aren’t humongous tax implications by becoming a “spouse” it is important you are aware of the following:
When tax time comes around, both of you still need to lodge your own individual tax returns. Unlike some overseas tax systems there is no “family” tax return in Australia. That said you will each be required to disclose some specific details about your better half.
Apart from maybe a name change and a change of address for one or both of you, the Tax Office want to know the date that you became spouses. You will also need to tell the Tax Office your spouse’s taxable income (including items such as foreign income, distributions from a trust, reportable fringe benefits and salary sacrifice) and also if any government pensions or allowances have been received. This can lead to some interesting conversations especially if you and your spouse don’t share or talk finances – don’t say I didn’t warn you.
These details are then used to work out certain government entitlements that may be based on overall “family income” thresholds such as childcare benefits as well as possible eligibility to other rebates and offsets like the medicare levy and low income offset. It is critical that this information is accurately reported in each spouse’s tax return to ensure that the correct entitlements 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 tax purposes. 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 spouse who owns the shares.
Joint bank accounts
Generally,where spouses open a joint bank account together the Tax Office assumes a 50/50 split of interest income because 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. For example, evidence will be required if one partner initially contributed a greater proportion (in dollar terms) to the joint bank account than the other partner and there is a desire to have the interest derived assessed in the hands of the primary contributor rather than jointly (that is, 50/50).
According to the Tax Office, relevant evidence to demonstrate whether a spouse has beneficial entitlement to the interest include such things as who contributed to the account, and in what proportions, the nature of the contributions and if one partner accessed the funds and any accrued interest for their own purposes.
Now that’s all good and well for those of you who are all loved-up but for those of you who aren’t so much remember that obviously there are ramifications if you doing the reverse and separating which I won’t talk about here because that’s just a tad depressing…..just quickly though keep paperwork and notes relating to dates – and I’m talking calendar dates there not date dates
If you’ve got any concerns or questions don’t hesitate to contact me anytime.