Tax Tip 388: What is the Definition of “Spouse” for Tax Purposes?

It is very important to know if 2 people are spouses or not – from a tax point of view. For example for capital gains tax purposes only one property between spouses can get the full main residence exemption so if a ‘couple’ had one main residence each only one of them could be exempt from CGT if they were spouses but each could potentially be exempt if they were not classified as spouses.

So, what is the definition for tax purposes?

It is different to the definition for other purposes – such as family law, succession law, family conversations etc.


For Commonwealth income tax purposes section 995-1 defines “Spouse” as

"spouse" of an individual includes:individual (whether of the same sex or a different sex) with whom the individual is in a relationship that is registered under a * State law or * Territory law prescribed for the purposes of section 2E of the Acts Interpretation Act 1901 as a kind of relationship prescribed for the purposes of that section; and

(b) another individual who, although not legally married to the individual, lives with the individual on a genuine domestic basis in a relationship as a couple.



Search for ‘spouse’ in the definitions at s 995-1 ITAA97
INCOME TAX ASSESSMENT ACT 1997 - SECT 995.1 Definitions



See slightly different wording at s 960-250 ITAA97
INCOME TAX ASSESSMENT ACT 1997 - SECT 960.250 What this Subdivision is about


Example

Lisa and Millhouse each have a main residence and end up living together in a rental property. They are now spouses and only one of their properties could be exempt going forward under the 6 year rule. They can decide this when they sell the first of either property.



Note that the definition under s 995-1 doesn’t include ‘married’ couples. However the wording “spouse of an individual includes” implies that the points a) and b) are not the only definitions of ‘spouse’, the legislation just lists 2 definitions. Legally married people would be spouses because of the Marriages Act, Commonwealth legislation. But this vagueness in the legislation means 2 people not living with each other could also potentially be ‘spouses’ too.

 

I have found tax agencies adopting a far stricter vigilance for same sex couples who often avoided or disregarded this view. In some ways its possibly a sad reflection of the past way such relationsships were frowned or scorned upon by society but I truly hope we are beyond that. Love is love after all. . Once upon a time it was seemingly ignored but with the continually updating of recognition of all legal or social manner of relationships there are increased issues. And its not "new". The recogntion of same sex relationships dates back to at least 2000 despite the absurdity of revised laws that allow legal marriage being far more recent. Even the issue of super and death benefits could be safeguarded by correctly completing returns. Copies of past returns showing a spouse would be very difficult for a trustee to disregard if a death benefit claim was to be made and require proof of the domestic arrangements and the nature of a "spouse". Trustee may defend their discrimination or adverse views if the individuals havent been honest and open about that issue themselves.

I sometimes see non married couples of all types who still seek to avoid recognition purely for tax benefits incl land tax, CGT exemptions etc. This is and should expect to be treated as avoidance. Agencies seem more aware of it.. I know one same sex couple who married and were later subject to a land tax audit purely on the basis of the registered marriage. OSR wasnt even shy in admitting that. Both claimed to live in seperate PPORs. In quite costly beachside suburbs. They were reassessed several years at a very significant 6 figure sum.