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The increased impact of Div 7A on family law settlements

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Published on 01 Nov 16 by "TAXATION IN AUSTRALIA" JOURNAL ARTICLE

Separated spouses who finalise their financial affairs under property settlement proceedings may now incur significant tax liabilities due to the potential application of Div 7A of Pt III of the Income Tax Assessment Act 1936. Where, pursuant to an order of the Family Court, a private company is required to make a payment to an associate of a shareholder, such a payment was previously considered to be excluded from Div 7A. However, due to a change in the Commissioner’s view, this payment will now trigger Div 7A with no exclusion applicable. 

This article examines the Commissioner’s former and present views and reasons for the change. The article discusses tax considerations when calculating the property pool, and possible structuring options. Property settlements involving de facto couples are briefly considered. The author concludes that practitioners may need to consider alternative settlement options which do not inadvertently trigger a tax liability under Div 7A.

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Tamara CARDAN
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