There are many forms of partnerships when it comes to relationships in Australia – married couples, defacto couples or same sex couples — you may be surprised to know that all partnerships are equal when it comes to the Australian Taxation Office (ATO).
Why’s that, you may ask? Romantic partnerships shouldn’t have anything to do with tax, and you’re right. There’s nothing less romantic than income tax (unless red wine and tax law is the thing that brings you together), however you’re still obligated to declare your spouse’s income when it comes time to lodge your tax return.
Let’s take the mystery away from this obligation.
We’ll answer the first question we’re mostly asked: ‘Do I need to pay tax on my partner’s income?’ You may be relieved to know that the answer is a solid ‘no’. Everyone pays their own income tax based on their own earnings; however, you’ll need to still notify the ATO of your spouse’s earnings.
The next question we’re normally asked is: ‘Why do I need to tell the ATO my partner’s income?’
The ATO uses your spouse’s income to determine a number of things that may benefit you. This includes entitlement to a private health insurance rebate, entitlement to the seniors and pensioner’s tax offset, entitlement to a Medicare Levy Surcharge reduction, or to assess if you’ll need to pay the Medicare Levy Surcharge.
Private Health Insurance
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 the rebate through your private health insurer or when you lodge your tax return.
Medicare Levy Surcharge (MLS)
You might be required to pay a Medicare Levy Surcharge if you or your spouse and dependent children don’t have an appropriate level of private patient health 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 which is calculated as a percentage of your income (up to 1.5%) as an additional payment after the Medicare Levy amount.
For singles, the limit is $90,000, and for couples that limit is $180,000. In families with two or more children, the family income threshold is increased by $1,500 each after the first born.
Pro Tax Tip: If you’re a new couple, it will pay 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 and you’ll be covered as an added bonus.
Is your partner… your partner? To the ATO, your partner or spouse is a person of any gender who you were in a relationship with who was registered under a prescribed state or territory law. You don’t need to be married. If you live in a genuine domestic basis as a couple, you’ll be deemed a spouse.
What Should I Declare In My Partners Income?
If you keep your balance sheet a private affair, that’s fine too. The ATO won’t ask for dollar for dollar details. An estimate is fine. It might also spark the need to chat with your partner about financial planning, superannuation and retirement if you usually sweep these types of conversations under the carpet.
When you estimate your spouse’s earnings, try to include their:
- Salary and wages
- Rental income
- Foreign sourced income
- Pensions and child support payments
Pro Tax Tip: If you’ve moved two households into one and owned and lived in your own residences before moving together and plan to sell a property, you may incur Capital Gains Tax (CGT) on your main residence. Working out your CGT implication can be tricky. A professional will help you reduce your amount if you do incur this tax.
The final question that normally follows is: ‘When do I need to declare my partners income?’
This answer is the easiest. 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 and that banks and other financial institutions have declared bank interest and other earnings for the financial year. Be aware that some institutions have until the 14th August to update their information.
You have until the 31st October to lodge your income tax return, or if you reach out for the help of a tax agent, you’ll have until the 15th May as long as you book your appointment before the 31st October if you need a little extra time.
Pro Tax Tip: Don’t omit your partner’s information. The ATO uses sophisticated data matching software which may trigger when your partner lodged their tax return and declare your income. If in doubt, ask a professional. They make it their business to be in the know about all things tax to avoid the hot water you may land in. Ignorance is not bliss when it comes to the ATO.
ITP Accounting Professionals has helped Australian singles, couples, spouses and partners for over 50 years. There’s not a lot they don’t know about tax. Call 180 367 487 or book online to chat with a friendly professional. Don’t pay more tax than you have to.