In most Family Law Property Settlement cases there is a transfer of property between the separated couple, be it the former house, a car or a business.
As with most transfers of property the government tends to tax those transfers. However, there are some special rules in relation to family law property settlement. This article will briefly outline the red flags that come up in such matters where your family lawyer will advise you to seek professional financial advice.
In New South Wales there is an attractive provision for separating couples in that no Stamp Duty is chargeable on a transfer of matrimonial property. This relates to if the parties’ relationship has broken down irretrievably and the transfer is in accordance with an Order from the Court. Depending on the property being transferred this provision can save separating couples tens of thousands of dollars as you are not required to pay stamp duty. Please note there are similar provisions for de facto couples under the NSW legislation.
Capital Gains Tax
Capital Gains Tax (“CGT”) is triggered when a party sells a “Capital asset/CGT asset”, such as the former home or shares in a company. The government taxes the person based on the capital loss or gain they receive.
There are around 50 CGT Events that attract CGT but common events in family law property settlements include:
- Disposal (selling or otherwise transferring out of your name) a CGT Asset (A1).
- A contractual right being created (D1).
- A sum of money received as a result of an act, transaction or event occurring in relation to a CGT asset.
Fortunately, there is automatic “CGT roll-over relief” to the disposal of a CGT asset from one spouse to the other spouse (this also applies to de facto spouses). However, this only applies if that disposal is in accordance with a Family Law Court Order.
Roll- over relief in effect allows the parties to disregard any capital gain or loss they made from the CGT event. The CGT will then be assessed at a later date if the asset is disposed of again. Where your case involves other CGT events such as the creation of a trust, disposal of an asset by a company or other alteration of property interests and it is important you seek professional financial advice.
The Tax legislation provides that a payment or benefit to a shareholder, director etc. from a company can be treated as a deemed dividend (effectively income) even if the company and shareholder treat it as a loan, gift or writing off a debt. This is an often overlooked consequence of transactions relating to companies and it is important you seek professional financial advice.
Property settlement Orders should be drafted by a lawyer and it is advisable you seek legal advice if you intend to settle your property affairs with your separating partner. Our experienced family lawyers can provide you with advice as to property settlement Orders. Call now on 4324 7699.