Australia: Significant change to ATO position on distribution of marital property

Last Updated: 22 January 2015
Article by Alison Brooks (previously with Kott Gunning)

Previous position

It has been a long held position of the Australian Taxation Office (ATO) that in circumstances where parties separate, and where a private company which effectively is under the control of one or both parties to the relationship is Ordered to transfer ownership to another party of the relationship of property, or make payment as part of the final settlement, that such property transfer or payment would be treated as the company discharging an obligation, rather than payment of a dividend by the private company. Therefore, the recipient would be exempt from being taxed on the funds or property.

New ATO Position

In July 2014, the ATO released Taxation Ruling TR2014/5, which operates to reverse the previous position.

This means that where:

  • property or funds are held in the name of a private company; and
  • the property or funds are considered to be part of the parties' marital asset pool; and
  • an Order is made by the Family Court for the payment of funds or transfer of property to a recipient (either by the private company or directing one of the parties to cause the payment or transfer to be made);

then the party receiving the payment or property will be assessed by the ATO for payment of personal tax as if they were receiving a dividend from the private company.

Usual approach to joint liabilities

The general approach of the Family Court is that where there are liabilities (such as sale fees and commissions for the disposal of a property), or taxation consequences (such as capital gain tax on disposal of a marital investment property), that these are to be deducted from the marital asset pool.

That is, both parties will be required to suffer the loss by way of a reduced marital asset pool being available for distribution.

In practical terms, the same will be required to be applied here, as the payment or transfer will be taking place as part of the final financial settlement.

As the funds received or property transferred will be assessed as personal income of the recipient, the actual taxation liability to be incurred will generally only be able to be ascertained on completion of the recipient's taxation return at the end of the appropriate financial year.

Franking Dividends

TR 2014/5 states that the payment of funds or transfer of property from a private company pursuant to a Family Court Order is Frankable.

Where the recipient is a shareholder, they will be able to claim the Franking Credit to offset the personal tax they are assessed to pay, and where the recipient is not a shareholder, they are considered an associate of a shareholder, and they are treated in the same way for the purposes of utilising the Franking Credit.

Obviously, where a dividend in Frankable, the private company will be assessed for the tax at the company rate on the payment of the funds or transfer of property.

This means, that consideration may be required as to whether the payment or property transfer should be franked in circumstances where other third parties have involvement in the company.

De facto couples

Although TR2014/5 is drafted in relation to a marriage breakdown (referring to the Family Law Act 1975), the ruling specifically notes that it is intended to apply to the division of assets on the breakdown of a de facto relationship also.


By way of example:

A Husband and Wife are the sole Directors and Shareholders of a private company, and the company has profits which are held as cash at bank in the latest financial year of $200,000.

The parties own residential premises worth $500,000, which are subject to a mortgage of $350,000, shares worth $50,000 and 2 motor vehicles, worth $20,000 each. The Wife has $20,000 in Superannuation Entitlements, and the Husband $80,000.

The total asset pool is therefore $200,000 + $150,000 + $50,000 + $40,000 +$100,000 = $540,000.

The Wife is to retain the house, her super, and her car; a sub-total of $190,000.

The Husband is to retain the business, the shares, his super and his car; a sub-total of $350,000.

If the pool is to be divided 50/50, the Husband is required to make payment to the Wife of $80,000 from the company's funds.

The payment of the $80,000 to the Wife by the company is considered to be a dividend, and is taxed as part of the Wife's assessable income. The tax liability incurred will depend on the Wife's other personal income for the financial year, but for the purposes of this example, we will assume the tax liability in relation to the payment is $40,000.

If no account is taken by the parties in relation to the tax liability incurred by the Wife on the payment, she will end up with overall assets of $230,000, while the Husband will retain $270,000.

Accordingly, the anticipated tax liability will need to be considered as part of the overall asset pool, meaning that the available assets and funds is now $500,000, rather than $540,000.

Operation of the TR2014/5 ruling

The TR2014/5 ruling states that it is in operation and applies both before and after its date of issue, being 30 July 2014.

However, the ruling also specifically states that it will not apply to taxpayers to the extent that it conflicts with the terms of settlement of a taxation dispute agreed to before the date of issue. Where the ruling is less favourable than the Commissioner's previous practice in relation to such orders against a private company, the ruling will not apply in respect of any orders made before the date of issue of the ruling.

The ruling will therefore apply to any orders made requiring payment or property transfer by a private company subsequent to the date of issue, or 30 July 2014.

What it means

The outcome of the TR2014/5 ruling, broadly in circumstances where parties have involvement in a private company and part of the financial division following separation involves payment to one of the parties of funds or transfer of property, there is the potential for a significant liability to reduce the size of the marital asset pool and the overall assets available for distribution.

It means that in order to avoid incurring such a liability, parties may be restricted in how they elect to divide the available funds and assets of the marital asset pool.

It also means when parties are contemplating Orders for their property division, they will need to ensure that the Orders they are seeking appropriately deal with the anticipated liability as this will usually not be incurred by the recipient until after the end of the appropriate financial year and the submitting of their tax return.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Kott Gunning is a proud member of

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Alison Brooks (previously with Kott Gunning)
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.