When a couple separates, one of the most important decisions they will need to make is how to divide their assets. This can be a complex process, and it is important to consider all of the financial implications, including the tax consequences.
In Australia, there are a number of tax issues that can arise in family law property settlements. Some of the most common issues include:
- Capital gains tax (CGT). CGT is a tax that is payable on the profit made when an asset is sold. If a property is sold as part of a family law property settlement, it is possible that CGT will be payable, especially if the property is owned for investment purposes. However, there are a number of exemptions and concessions that can apply, so it is important to seek professional advice to determine how this might affect your individual circumstances.
- Stamp duty. Stamp duty is a tax that is payable on the transfer of property. In some cases, stamp duty may be payable when a property is transferred as part of a family law property settlement. However, in New South Wales, couples are often exempt from paying stamp duty on the transfer of property from one spouse to the other, as long as certain conditions are met such as having formal Consent Orders made.
- Income tax. In some cases, income tax may be payable on the proceeds of a family law property settlement. For example, if a property is sold and a capital gain is made, the capital gain may be taxable. Similarly, if a business is transferred as part of a property settlement, the income from the business may be taxable.
- Deemed dividends. In some cases, a party to a family law property settlement may be treated as having received a dividend. This can happen if a shareholder receives an asset from a private company. The party who is treated as having received the dividend may be liable to pay tax on the dividend.
- GST. In some cases, GST may be payable on the transfer of property as part of a family law property settlement. For example, if a business is transferred as part of a property settlement, GST may be payable on the value of the business assets.
- Family trust distributions. If a family trust is involved in a property settlement, the distribution of trust assets may be subject to tax.
- Superannuation. The transfer of superannuation assets as part of a property settlement may be subject to tax.
- Foreign assets. If the parties have foreign assets, the tax implications of the property settlement may be more complex.
Here are some tips for avoiding tax surprises in family law property settlements:
- Get professional advice early on in the process. A family lawyer, together with your or an independent accountant, can help you understand the tax implications of your options and to develop a plan that minimizes your tax liability.
- Keep good records. You will need to keep accurate records of all of your assets and liabilities, as well as any income and expenses that are relevant to the property settlement. This will help you to calculate your tax liability and to substantiate your claims to the Family Court.
- Be aware of the tax traps. There are a number of tax traps that can catch people out in family law property settlements. For example, if you sell a property that has not been your main residence for the entire period of ownership, you may be liable to pay CGT on the entire gain.
- Communicate with your ex-partner. Where appropriate, it is important to communicate with your ex-partner about the tax implications of the property settlement so both parties are aware of the tax position and this can be factored into the settlement so neither party is disadvantaged or surprised down the track.
It is important to note that these are just some of the tax issues that can arise in family law property settlements and is not an exhaustive list. The specific tax implications will vary depending on the individual circumstances of the parties involved. Therefore, it is important to seek professional advice to ensure that you are aware of all of the tax consequences of a property settlement. For many, advice will need to be obtained from both a qualified family lawyer and accountant.
Here at Gillard Family Lawyers, we have experienced solicitors in the area of family law to help you manage your trust and property settlement matters. We pride ourselves on empathy and compassion, so if you need legal help with a Family Law matter, simply get in touch with our friendly team.