If you’re thinking about taking the next big step in your relationship, congratulations! (Fingers crossed they say YES!) While love is at the heart of any proposal, it’s also important to consider the practical side of marriage.

In Australia, marriage is not just a personal milestone but also a legal and financial event with potential financial implications. While the tax system in Australia is not designed to offer direct tax benefits for married couples, the act of marriage can affect your tax situation in several important ways, especially if you start sharing assets and/or have children. Understanding these impacts can help couples make informed decisions about their financial planning.

So, do you pay less tax if you’re married?

The quick answer is no – HOWEVER you will have higher limits before the Medicare levy surcharge kicks in, and you may set up a family trust that can be used to your benefit by spreading taxable income across your family.

Let's take a look at the impact of getting married on your taxes in more detail.

1. The Tax System in Australia: Individual Taxation

Australia’s tax system operates on an individual basis, meaning each person is taxed according to their own income, regardless of whether they are married or single. Unlike some other countries, Australia does not provide a "marriage tax allowance" or any automatic tax breaks for being married. This means that a couple's combined income will be taxed as if they were two separate individuals, with each person’s income being taxed at progressive rates based on their individual earnings.

However, while marriage itself does not alter the tax brackets, the way in which a couple manages their finances might result in a more advantageous tax outcome.

2. Family Tax Benefit (FTB)

While married couples are not taxed jointly, certain benefits, such as the Family Tax Benefit (FTB), may be available to couples with children. The FTB is designed to assist low- and middle-income families with the cost of raising children, and eligibility depends on factors such as income, the number of children, and the family’s circumstances. Married couples can apply for FTB as a family unit, and the amount of assistance depends on the combined income of both partners.

Couples who are married and have children may receive higher or lower FTB payments depending on how their joint income is assessed. The Family Tax Benefit is a good example of how marriage can indirectly impact a family’s tax situation.

3. Spouse Tax Offset

The Australian tax code provides a benefit for one partner in a marriage if their spouse has a low income. The Spouse Tax Offset (also known as the Spouse Superannuation Tax Offset) was introduced to provide tax relief for the higher-income partner who supports their low-income spouse.

To qualify for this offset, the lower-income spouse must earn less than a certain threshold, which is adjusted annually. The higher-earning spouse may receive a tax offset up to a certain amount depending on the combined income level. As of recent years, this offset has been gradually phased out for higher-income couples, but it can still be relevant for some lower-income earners.

4. Superannuation Contributions and Marriage

Marriage can also affect the way in which superannuation contributions are made. Under Australian law, both individuals in a marriage maintain their own superannuation accounts. However, married couples can benefit from concessional superannuation contributions if one partner chooses to contribute to the other’s superannuation account, particularly in the case of a non-working spouse. These contributions may help reduce the couple's overall taxable income and increase the receiving spouse’s superannuation balance.

Additionally, one spouse can make contributions on behalf of the other spouse as part of a strategy to boost retirement savings. This can be a tax-efficient way to help your partner build up their superannuation savings, especially if one partner has lower or no income.

5. Capital Gains Tax (CGT) and Marriage

Marriage has potential implications for capital gains tax (CGT), especially when it comes to asset ownership. In Australia, married couples can transfer assets between themselves without triggering CGT liabilities, as long as the transfer is between spouses. This means that if one partner holds an asset with significant capital gains and the couple wants to shift ownership for estate planning or other purposes, the transaction can occur without the immediate tax consequences that would normally arise if the asset were sold.

However, once the asset is sold to a third party, CGT may apply, and the capital gains will be calculated based on the original cost base, not the value at the time of transfer between spouses.

6. Estate Planning and Marriage

Marriage plays a significant role in estate planning, and this can indirectly affect taxes. When a married person passes away, their spouse may inherit assets without having to pay inheritance tax. While Australia doesn't have an inheritance tax, you might still face capital gains tax when selling inherited assets; superannuation death benefits can also attract tax depending on who you are and what you're receiving.

It’s important to plan for how assets will be distributed upon death, as this can impact both the surviving spouse’s tax obligations and the potential tax liabilities of beneficiaries. Proper estate planning can help mitigate taxes that may arise from asset transfers after death.

7. The Impact of Divorce on Taxes

While the focus of this article is on marriage, it’s important to mention that divorce can also have an impact on the financial situation of both parties. When a marriage ends, there may be capital gains tax implications when assets are split, and individuals may face changes in their tax status as a result of changes in their income or deductions. The tax implications of divorce are complex and often require careful planning to avoid unnecessary penalties.

Conclusion

In Australia, marriage itself does not offer significant direct tax advantages, but it can influence a couple’s tax situation in various ways, particularly when it comes to Family Tax Benefits, superannuation, and asset transfers. While couples are taxed individually, managing finances in a marriage requires awareness of these potential tax implications and planning accordingly. As always, it is advisable to consult with a financial or tax advisor to ensure that both partners are optimising their tax outcomes and preparing for a secure financial future together.