The Australian Taxation Office (“ATO”) has recently finalised the draft taxation ruling TR 2013/D6 in relation to property settlements following spousal separation (originally issued in November
2013). The finalised ruling, called TR 2014/5, will affect the manner in which property settlements for family groups with companies are able to be arranged in divorce proceedings.

In the past, the Commissioner issued a number of Private Rulings to taxpayers advising that payment made by a company to an individual under an Order of the Family Court of Australia (under the Family Law Act 1975) did not constitute a dividend or give
rise to a deemed dividend.

The Commissioner’s view outlined in the new ruling is a departure away from the prior administrative practice. The view outlined in TR 2014/5 is as follows:

  1. Money or property paid or transferred to a shareholder is an ordinary dividend (and able to be franked if sufficient franking credits exist) to the extent that it is paid out of the private company’s profits and is assessable income of the shareholder;
  2. Money or property paid or transferred to an associate of a shareholder is subject to Division 7A of the Income Tax Assessment Act 1936 (and able to be franked if sufficient franking credits exist); and
  3. Rollover relief from Capital Gains Tax may be available where property is transferred from the company to shareholder or their associate.

The ATO has confirmed that the Commissioner’s view in TR 2014/5 may be less favorable to the taxpayer. However the rulings will not apply in respect of any orders made before 30 June 2014.

This final ruling means greater caution is required for taxpayers and their advisors finalising property settlements where companies are involved.

Next Steps

If you would like further information about how these changes may impact upon you, please do not hesitate to contact Brian McDonald, Natalie McKay or Murray Howlett from our office on (07) 3023 1300.