If your property settlement will include a payment from a private company to which you or your ex is linked, be sure to understand the tax implications. Thanks to a tax ruling last year (TR2014/5), certain assets will be ripe for the taxman, to the surprise of many (including some professional advisors!)
Say one of the assets is a $1 million rental property and you’re on the top tax rate. There could be a sting attached to this seemingly generous million dollar asset you receive in the form of a tax bill of about $490,000 (49 per cent including Medicare and the temporary budget repair levy).
The tax ruling basically clarifies that as of July 30, 2014, any transfer of property or payment of money from a private company to members of a couple splitting up (either from a marriage or de facto relationship) made as a result of a Family Court order is regarded by the ATO as assessable dividends. This also applies to same-sex partners.
The new tax ruling (a clarification rather than an outright change) is complicated and, along with considerations of capital gains tax consequences that can kick in when property is sold, it is essential both you and your ex get independent advice on potential tax outcomes of any assets and cash that are being transferred out of the family company.
Note that lawyers cannot give financial or tax advice but that they should flag this issue with you so that you have an opportunity to obtain financial advice before signing off on property orders. A good accredited specialist in family law should be aware of such implications and when to suggest a tax advisor be engaged.
Need help with your property settlement matters? Please call our Accredited Specialist Cristina Huesch at Alliance Family Law on (02) 6223 2400.