When a family court order as a part of a marriage breakdown requires assets held in a family company to be transferred there is no CGT payable due to the 126A rollover.
BUT if the receiving spouse is a shareholder the Commissioner says it is a dividend and taxed under section 44 of the ITAA36. And even if the spouse is not a shareholder but is an associate of a shareholder it is a Division 7A loan.
So you are looking at 46.5% tax and no cash to pay it… But why not frank it I hear you say… Try this…
My ex-wife comes into your office and says she received substantial assets out of our family company as a part of a marriage settlement under a family court order. You explain this is a deemed dividend but you can reduce the tax payable by 30% by franking the dividend.
HOW DO YOU FRANK THE DIVIDEND? You call me up and ask me, as the director of the family company, to agree to frank the dividend… Agree to give up franking credits to my ex wife who left me for some McDreamy doctor – Not likely.
So the answer is either don’t get divorced or don’t have assets transferred out of the family company under a family court order.