The breakdown of marriage... common tax traps
Picture this - your client has finally started to get his life back on track after a nasty property dispute with his former wife. An audit by the ATO uncovers the transactions made pursuant to the Family Court Order trigger significant tax consequences for the client. He was not advised of the potential tax risk during the negotiation. The tax has eaten into his share of his property settlement money and he is now looking for someone to blame. You can bet the lawyer and accountant will be on the top of his hit list.
It is therefore important that accountants and lawyers work together to jointly ensure that their clients are made aware of the tax implications to
enable the client to make an informed property settlement decision.
Division 7A and trusts
If the property settlement agreement is formalised by way of a recognised Order or Agreement under the Act, then the dividend can be treated as franked.
Recognised Orders and Agreements made in accordance with the Act need to be drafted to ensure that, if applicable, the transfer or payment obligation
is on the company rather than the husband or wife personally to ensure that the deeming provisions don't apply (i.e. the dividend can be franked).
Capital Gains Tax
CGT rollover relief is a well known benefit of obtaining Orders. It is important to remember though that there is not a complete exemption.
Did you know - The conveyance costs of transferring the property into the new spouses name can be included in the cost base when assessing the capital
gain in the future?