TAX ASPECTS OF PROPERTY DIVISION

Tax Aspects of Property Division

Tax Aspects of Property Division

Taxation Ruling confirming Draft Ruling TR 2013/D6

In my paper to the Family Law Practitioners Association Annual Conference in May Tax Aspects of Property Division (also available on my blog) I made reference to this at para 5.1. Oral Commentary in the presentation to the effect that some ATO officers were still open minded on the issue should now be regarded as superseded by TR 2014/5

This ruling deals with the tax effect of private companies paying money or transferring property to satisfy family court property orders under s 79 of the Family Law Act 1975.

Money or property to be transferred to an associate of a shareholder.

Where a s 79 order requires a payment of money or transfer of property to an associate of a shareholder of the private company, such payment or transfer is a payment for the purposes of s 109C(3) of ITAA 1936. Further, s 109J of ITAA 1936 does not prevent the payment from being treated as a dividend under s 109C(1).

Dividends frankable

Dividends and payments described above, to the extent they are taken to be dividends, are frankable. Where a dividend that is taken to be paid to an associate of a shareholder under s 109C is franked, that associate is themselves treated as being a shareholder (having the same characteristics as the shareholder with whom they are associated) for the purposes of Div 207 of ITAA 1997 (effect of receiving a franked distribution), including for the purposes of determining whether:

• the franking credit is included in their assessable income, and
• they are entitled to claim a tax offset equal to the amount of that franking credit.

CGT rollover relating to marriage breakdown applies

Where a private company transfers property to a shareholder in compliance with a s 79 order, the CGT rollover consequences relating to marriage breakdown in s 126-5 of the ITAA 1997 apply. The cost base of the shareholder’s shares in the private company (if acquired after 20 September 1985) are both reduced under s 126-15(3) and increased under s 126-15(4).

Where a private company transfers property to an associate of a shareholder in compliance with a s 79 order, again the CGT rollover consequences in s 126-5 apply.

The cost base of the shareholder’s shares in the private company (if acquired after 20 September 1985) are reduced under 126-15(3) of the ITAA 1997.

Steve Bishop
Bishops Barristers & Solicitors
Managing Partner

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