Be wary: seek accounting and financial advice before orders are made affecting the transfer of your property
It is important to work out with your financial advisers the effect on your taxation liabilities of a proposed court order. For example, a distribution from a private company as part of a family law settlement may be subject to an ordinary income tax assessment under a draft Taxation Ruling handed down on 11 November 2013.
Consider carefully the effect of the proposed transfer of assets and the capital tax implications. The proposed transfer may not capture the roll over relief and capital tax may be levied on the transaction.
Roll over relief applies in circumstances where there is a breakdown of a marriage or of a relationship. It is allowed when a capital gains tax asset is transferred by a person to the spouse or partner in accordance with a court order, a court approved maintenance order or a binding financial agreement. Roll over is also available when the asset is transferred by a company or trust to a spouse or a partner in accordance with an order or an agreement.
What does this mean? Simply that no immediate tax may be payable or alternatively, if any contingent tax liability exists, then it will be transferred from the spouse or partner or company or trust (whichever is applicable). So, think carefully before agreeing to accept an asset in a settlement and ensure you have obtained the proper financial advice.
In circumstances where you and your partner have set up trusts you should look carefully at the trust deed. Distributions may be taken from capital or income of the trust and will be determined strictly in accordance with the trust deed.
Fay Frischer is a highly experienced solicitor dealing in family law, property and Wills and Estates. Learn more about her by reading her bio.