Divorce statistics don’t make for great reading. One in three first marriages and one in two second marriages end in divorce.
Assuming the statistics are reasonably consistent across the small business community then it is likely that a large number of SMEs will be caught up in family law property settlements.
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These settlements are simply about causing a division of assets of the marriage. And that includes the business assets.
Either by agreement or as part of the division it is common for assets owned by the business to be transferred out of the business to one of the parties.
This can achieve the property split but are there are tax issues that come with this transfer?
There are three key tax risks to consider – capital gains tax, Division 7A, and GST.
Where a capital asset is transferred out of a company or trust this can give rise to a capital gain. This is despite the fact that all of the parties may not be in favour of the transfer and simply following a decision of the Family court.
Subdivision 126-A of the Tax Act provides relief for such a transfer providing it is done under a court order under the Family Law Act or a binding financial agreement.
In this case there is relief from any capital gain. It is important in these cases to ensure that all of the conditions are met.
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