How does get­ting mar­ried af­fect my tax?

The Sunday Times - - BUSINESS WEEKLY - SCOTT PAPE

Hi Bare­foot, We are get­ting mar­ried in June next year. I’d like to know what tax im­pli­ca­tions there are af­ter we get hitched. We are both 27, I earn $64,000 a year and he earns $74,000. We cur­rently keep our fi­nances sep­a­rate and plan to do so un­til the marriage (though we have joint sav­ings for the wed­ding, which will be spent). Hi Kelly, Con­grat­u­la­tions. You are the first bride-to-be to put tax plan­ning on their to-do list.

Brides­maids’ dresses? Check. Flow­ers? Check. Tax im­pli­ca­tions of nup­tials? . . . Email the Bare­foot In­vestor.

Then again, you’re talk­ing to a guy who times his Bare­foot Date Nights to co­in­cide with the monthly Re­serve Bank meet­ing. Hot!

OK, so the big change is an ad­min­is­tra­tive one. Once you’re mar­ried, you’ll need to record on your tax re­turn that you have a spouse, and in­clude his tax­able in­come. Your spouse will have to do the same on his tax re­turn.

The Aus­tralian Tax­a­tion Of­fice needs your spouse’s in­come to work out if they can slug you with ex­tra tax (cou­ples with­out pri­vate health in­sur­ance that earn over $180,000 com­bined will be hit with a 1 per cent Medi­care Levy Sur­charge, ris­ing to 1.5 per cent for cou­ples earn­ing over $280,000), and also to work out any fam­ily tax ben­e­fits. There are a few other im­pli­ca­tions. The Good: you can split your (non-salary) in­come with your spouse, so al­ways in­vest in the low­erearn­ing spouse’s name. The Bad: if you both own a home, you have to choose which one gets the cap­i­tal gains tax (CGT) ex­emp­tion. Talk to your ac­coun­tant. The Ugly: watch Seven Year Switch on Chan­nel 7.

Par­ent­ing dilemma

Dear Scott, We are two moth­ers — a cou­ple want­ing to have a baby. We fin­ished read­ing your book a cou­ple of weeks ago and have started im­ple­ment­ing the strat­egy. The trou­ble is, I have never wanted to have kids un­til I had enough money, but my part­ner wants them as soon as pos­si­ble. And I ad­mit the bi­o­log­i­cal clock is tick­ing. We both work but have next to no money. I thought you may be in­ter­ested in a same-sex cou­ple. We too have fi­nan­cial trou­bles . . . it is not easy, that’s for sure. Hi An­nie, On one hand, you wouldn’t be the first broke par­ents to de­cide to have a kid.

On the other hand . . . what are you think­ing?

You need to take re­spon­si­bil­ity for your fi­nan­cial sit­u­a­tion be­fore you can take on the ul­ti­mate fi­nan­cial re­spon­si­bil­ity of hav­ing a child. You’ve read the book, so you’ve got your road map — now it’s time for wine, gar­lic bread, and ac­tion.

Bor­row to buy shares?

Hi Scott, My hus­band and I are both 40, have two very young girls, and have owned our home out­right for three years. We are now down to one wage ($100,000), but have also man­aged to put away $90,000 in sav­ings. We have bor­rowed to in­vest in shares, on the ad­vice of our fi­nan­cial ad­viser. But we think we could have been sav­ing this money in­stead. What is your take on this? Hi Natalie, Get­ting the banker off your back is (fi­nan­cially) the best thing you could have done for your fam­ily.

Now, the strat­egy your fi­nan­cial ad­viser has you on is neg­a­tive gear­ing (in this case shares, not prop­erty). And while the gains can look awe­some on a spread­sheet, most peo­ple don’t have the ticker for a stock mar­ket crash on bor­rowed coin.

There are two ma­jor pur­chases that money can buy: the fi­nan­cial se­cu­rity of never hav­ing to worry about money again, and the free­dom to spend time with your fam­ily and friends.

First, save up three months of liv­ing ex­penses in a Mojo sav­ings ac­count.

Sec­ond, max out your pre-tax su­per con­tri­bu­tions of $25,000 each year. That’ll give you both a tax de­duc­tion and a se­cure re­tire­ment.

Third, set up a long-term share in­vest­ing pro­gram to fund your kids’ ed­u­ca­tion, awe­some fam­ily ad­ven­tures, and weird hob­bies. In­vest in the lower-earn­ing spouse’s name and, if you’re a ner­vous in­vestor, do it with­out debt.

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