Marriages, de facto partnerships, same-sex relationships, couples with kids, DINKs (dual income, no kids)—relationships come in all different forms. And all are equal in the eyes of the Australian Taxation Office (ATO). Of course, no one really wants the ATO getting involved in their romantic partnership. After all, there’s nothing less romantic than income tax (unless red wine and tax law is the thing that brings you together). However, there are still a few tax tasks you may need to tick off if you’re in a relationship. One of them is declaring spouse income when it comes time to lodge your tax return.
Like most tax-related things, this can be a confusing topic. So, we’re dedicating this article to taking the mystery out of declaring spouse income. After all, mystery is for date nights, not for tax obligations! Let’s start with the first question ITP’s tax accountants most commonly hear.
Do I Need to Pay Tax on My Spouse’s Income?
The answer is a solid ‘no’. Everyone pays their own income tax based on their own earnings. So, declaring your spouse’s income will never result in you having to pay extra tax.
That being the case, many people wonder why they need to notify the ATO of their spouse’s earnings at all. This is an excellent question, and you’ll be pleased to know that the reason is actually something that could benefit you.
Why do I Need to Tell the ATO My Spouse’s Income?
The ATO uses your spouse’s income to determine a number of things that may work in your favour. These could include entitlement to:
- A private health insurance rebate
- The seniors and pensioner’s tax offset
- A Medicare Levy Surcharge reduction (or you may find you don’t have to pay it at all)
Below, we take a look at few of these benefits in greater detail.
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What Is the Private Health Insurance Rebate?
You may be entitled to a rebate on the amount you spent on private health insurance. This amount is different for singles and couples. The private health insurance rebate is the amount the government contributes towards the cost of your private health insurance premiums. This rebate is means-tested. You can claim it through your private health insurer or when you lodge your tax return.
What Is the Medicare Levy Surcharge (MLS)?
You might be required to pay a Medicare Levy Surcharge if:
- You and/or your spouse and dependent children don’t have the required minimum level of private hospital cover, and
- Your income is above the threshold.
If you’re a high income earner and don’t have private health insurance, you’ll likely need to pay the MLS. Note that this is a payment you make on top of the base Medicare Levy. It is calculated as a percentage of your income (up to 1.5%).
For singles, the limit set for the 2023/24 tax year is $93,000. For couples, it’s $186,000. In families with two or more children, the family income threshold is increased by $1,500 for each additional child (not including the first).
Pro Tax Tip: If you’re a new couple, it pays to check your combined income to make sure you’re not over the threshold. Taking out private health cover means you won’t need to pay the surcharge. You’ll also have access to private care if needed. It’s not something you ever want to use, but if worse comes to worst, it’s certainly good to have.
What Is a Spouse According to the ATO?
For tax purposes, the ATO defines your spouse as:
- Someone you’re legally married to
- A person you’re in a registered relationship with under state or territory law
- An individual who, while not legally married to you, lives with you in a genuine domestic partnership
This definition encompasses various types of relationships recognised by Australian tax law. It’s important to note that your living arrangements and the nature of your relationship are key factors in determining spouse status, especially for de facto partnerships.
What Should I Declare About My Spouse’s Income?
The ATO won’t ask for dollar-by-dollar details. So don’t stress if you’re the kind of couple who keeps financial matters separate. An estimate is fine.
Having said that, this question might spark a valuable discussion about financial planning, superannuation, and retirement. If you usually sweep these types of conversations under the carpet, it may be worth having the courage to be open with your partner about your plans and intentions for the future.
On the paperwork side of things, when you estimate your spouse’s earnings, try to include:
- Salary and wages
- Dividends
- Interest
- Rental income
- Foreign sources of income
- Pensions and child support payments
Pro Tax Tip: If you’ve moved two households into one and plan to sell one of your properties, you may incur Capital Gains Tax (CGT) on your main residence. Working out your CGT implication can be tricky. To get an overview of what you’ll be in for, read our article on what triggers a Capital Gains Tax event. If you feel you will be up for CGT, contact ITP. One of our certified tax agents will help you reduce what you owe if you do incur this tax.
This brings us to the final big question people often ask our tax accountants about spouse income. Thankfully, it’s also the easiest question to answer!
When do I Need to Declare Spouse Income?
You’ll need to make a declaration when you lodge your own tax return. As long as your partner has their statements marked as ‘tax ready’, you’re good to go.
Most Australian’s income statements are marked as ‘tax ready’ by the 14th July. This means that:
- Their employer has updated their salary or wages and superannuation information to the ATO
- Their superannuation fund has declared their income
- Banks and other financial institutions have declared interest and other earnings for the financial year.
Be aware that some institutions have until the 14th of August to update this information. You, meanwhile, have until the 31st of October to lodge your income tax return. If you work with a tax agent, you get a significant extension on this due date. You’ll have until the 15th of May the following year, as long as you book your appointment before the 31st of October.
Pro Tax Tip: Never omit spouse income from your tax return. The ATO uses sophisticated data matching software, which may trigger when your partner lodges their tax return and declares your income. If in doubt, ask a professional. At ITP, we make it our business to be in the know about all things tax. Ignorance is not bliss when it comes to the ATO, but we’re here to keep you safely out of their bad books!
ITP’s Accounting Professionals has helped Australian singles, couples, and business owners for over 50+ years. There’s not a lot we don’t know about tax. Call 180 367 487 or book online to chat with a friendly professional. With ITP, you’ll never pay more tax than you have to.