As newlyweds you may be wondering how this impacts your tax situation. When it comes to lodging your tax return, the simple answer here in Australia is that nothing changes. In fact, whether you are married or in a de facto relationship each spouse will continue to lodge an individual tax return, just as they would have done prior to committing to one another.
Although you will lodge separate returns, when it comes to your overall tax situation as a couple, there are some things you’ll need to consider jointly. We’ve prepared some tips below to guide you through this process.
Understanding Your Options
In Australia, individuals earning over the tax-free threshold are required to file tax returns separately, regardless of their relationship status. However, newlyweds and those in de facto relationships should still carefully consider how to handle their joint finances and comprehend the tax implications that their new relationship status can bring.
Joint Considerations
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Income Reporting:
Even though you’ll lodge your tax returns separately, it is still essential to include your spouse’s income in your own tax return. Without this information, the Australian Taxation Office (ATO) wouldn’t be able to apply any offsets and rebates that you may be eligible for. This is something your Accountant will ask for each year when processing your return.
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Offsets and Rebates:
Couples may be eligible for different tax offsets and rebates, like the low-income tax offset, private health insurance rebate, and exemption from the Medicare levy surcharge. Understanding these offsets can help you to reduce the amount of tax you both need to pay.
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Spouse Super Contributions:
It’s not uncommon for one spouse to earn less than the other. It’s important to note that if the lower income spouse (Spouse A) earns below a certain threshold, their partner (Spouse B) can contribute to Spouse A’s superannuation fund and qualify for a tax offset. This strategy can help increase Spouse A’s retirement savings and in turn lower Spouse B’s taxable income, resulting in less tax paid and more money invested in your retirement together.
The Benefits of lodging Separate Tax Returns
Depending on where you live in the world, lodging a joint tax return may be an option for you.
As we don’t have that option here in Australia, you may be wondering why the ATO adopted this model of individual returns and how it is beneficial to us Aussies.
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Tailored Deductions:
Lodging separately allows for each spouse to claim deductions individually. This means couples with two very different jobs and income streams can ensure all eligible deductions are addressed for both of their situations. This approach might also result in a higher total deduction compared to lodging jointly.
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Individual Control:
While tying the knot or entering into a de facto relationship brings two people together in many ways, lodging separate tax returns allows each spouse to maintain control over their finances and tax responsibilities.
There is of course the question of whether some offsets and rebates could be missed by lodging separately, resulting in a higher tax bill than you would have combined. It’s important to note that this wouldn’t happen in Australia if you have accurately recorded your spouse’s income in your tax return when prompted.
Most offsets and rebates introduced in Australia (such as those we saw during Covid) are applied at the individual level. The exception would be the family tax benefit, which is administered through Centrelink and applied at the family level. If you’re eligible for the family tax benefit, and registered with Centrelink, this is automatically issued to you through Centrelink after your tax return has been processed. Eligibility is determined based on both spouse’s completed tax returns.
Despite your tax returns being lodged separately, as Accountants we do recommend that our married and de facto clients book their tax returns in to be processed at the same time. This streamlines the process and allows us to complete both returns quicker having all required information for both parties at hand at the same time.
Tips for Maximising Your Tax Benefits
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Keep Detailed Records:
Keep detailed records of your income, expenses, as well as any deductions or offsets you intend to utilise. By doing so, you will simplify the process of lodging your tax return and avoid overlooking any possible tax advantages. The ATO requires you to keep records such as receipts for five years from the date you lodge your return.
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Review Your Superannuation:
Contributions to superannuation can have a notable effect on your tax position. By reassessing your super contributions and adding more if feasible, you can enjoy tax advantages and enhance your retirement funds.
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Plan for the Future:
You’ve made a commitment to your partner, now it’s time to think about your long-term financial objectives. Effective tax planning is key to reaching your goals, so dedicate time to strategize your finances collectively and make well-informed choices together.
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Consider Professional Advice:
Tax laws can be confusing, and to make things worse, they can change often too. This is where getting advice from a tax professional can provide a lot of value. They’ll be able to offer up-to-date advice tailored to your specific situation, while ensuring you stay compliant. Yes, you will have a small out-of-pocket expense up front for their services, but often you’ll walk away with a much bigger tax saving due to the knowledge and expertise they bring to the table.
Fun Fact: Accounting services can be claimed on your next tax return as a deduction.
To Sum it Up…
Navigating the Australian tax system as newlyweds or as a de facto couple might appear overwhelming. However, understanding your options and planning strategically can lead to significant tax advantages. To enhance your tax situation, keep detailed records, seek advice from experts, and align your financial plans with your future goals. While you’re required to lodge individually, jointly discussing your finances can help in making wise decisions for your life together.
If you’d like some assistance with your personal or business tax return, please don’t hesitate to get in touch or book an appointment online.
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