Draft ruling on tax implications of property settlement transfers

As is oft the case I am a little late in catching up with my Proctor reading.

On reading the May edition I came across an article by Chris Nyst and Rohan McAdam alerting us to a new draft ruling of the ATO foreshadowing "a significant change in the way it will assess for taxation purposes, the distribution of joint matrimonial property pursuant to property proceedings under section 79 of the Family Law Act 1975."

The Family Court can and often does order a private company ( or individual party to the proceedings to cause the private company ) to pay money or transfer property to another party to the proceedings. Currently section 109J of the ITAA exempts such distributions for income tax assessment purposes, but according to Nyst and McAdam, under the new draft ruling, when money or property is paid by a private company or a party to the matrimonial proceedings, or transferred to a shareholder, the payment will be deemed to be an ordinary dividend , assessable as income of the shareholder under section 44 of the ITAA.

Just another reason to bring the accountants in on the terms of settlement to avoid a law claim at a later stage.