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Division 7A in property settlements

When parties separate and the main asset is a private company controlled by either one or both of the parties, a payment from one spouse to the other from such company (including the transferring of an asset of the company to one of the parties), now has taxation consequences for the receiving spouse. In the past such payments have been exempt from Division 7A of the Income Tax Assessment Act 1936. Consequently, monies (or an asset) received by a spouse from the company as part of the property settlement, were not considered dividends paid and therefore not subject to tax.

Since 30 July 2014 however, such payments and transfers have been treated as a dividend received by the receiving spouse pursuant to Division 7A of the Income Tax Assessment Act 1936. Franking credits can still be applied towards such dividends.

Parties to a matrimonial property settlement now need to be aware however, especially the receiving spouse, that taxation consequences may arise if monies are paid to them or an asset is transferred to them from a private company as part of a family law property settlement.

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