New tax trap for relationship breakdowns

For many people, the breakdown of a spousal relationship is devastating not only emotionally, but also financially, as assets are divided and property settlements are negotiated. Even in circumstances where the split is amicable, many couples have difficulty coming to agreement on how to apportion the asset pool. Now a new ruling from the Australian Tax Office has thrown a potential spanner in the works that may make it even harder for divorcing couples to work out who gets what, and how much.

In July 2014, the ATO issued its final version of Taxation Ruling TR2014/5¹. This ruling clarified the position in its earlier draft ruling² that the receipt of cash or property from a private company pursuant to Family Court orders is subject to tax as an assessable dividend.