The Commissioner has released a fact sheet on when a payment or in specie transfer from private company to an individual under matrimonial proceedings can be a dividend or a deemed divided.
I have discussed this before but there are some interesting examples in this fact sheet:
First the simple case…
Tim, Helene and a private company are parties to matrimonial property proceedings before the Family Court. Tim and Helene are both shareholders of the private company. The Family Court makes an order requiring the private company to transfer a rental property with market value of $1,000,000 to Tim.
On 30 April 2014, the private company makes the transfer of the rental property to Tim.
The market value of the rental property ($1,000,000) is an ordinary dividend to Tim for the 2014 tax year.
Now the Division 7A case…
Max, Denise and a private company are parties to matrimonial property proceedings before the Family Court. Denise is the sole shareholder of private company.
The Family Court makes an order for the private company to transfer a rental property with market value of $500,000 to Max. On 30 June 2014, the private company makes the transfer of the rental property to Max.
The market value of the rental property ($500,000) is a deemed dividend to Max for the 2014 tax year.
There are also examples where there is a limited distributable surplus (therefore there is a dividend limited to the distributable surplus), and an example showing these dividends can be franked (remember a Division 7A deemed dividend is franked at the benchmark franking rate or 100% if no other dividends have been paid in the year).
It is worth noting that the fact sheet state where the Family Court requires the private company to pay money to a spouse who is not a shareholder, these rules only apply where the obligation to pay the money was imposed by the Family Court on or after 30 July 2014.
So lets get it right from now on…