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On 30 July 2014, the ATO issued Taxation Ruling TR 2014/5 entitled "Income tax: matrimonial property proceedings and payments of money or transfers of property by a private company to a shareholder (or their associate)".

It was previously released in draft form as TR 2013/D6.

The Ruling is concerned with the taxation effect under s 44 of ITAA 1936, Div 7A of Part III of ITAA 1936, Subdiv 126-A of Part 3-3 of ITAA 1997 and Div 207 of ITAA 1997 of private companies paying money or transferring property in compliance with orders made under s 79 of the Family Law Act 1975.

The Ruling states at para 4:

"Where a section 79 order requires:

  • a private company, or
  • a party to the matrimonial proceedings to cause the private company,

to pay money or transfer property to a shareholder of the private company, the payment of money or transfer of property in compliance with that order is an ordinary dividend to the extent paid out of the private company profits and is assessable income of the shareholder under section 44 of the ITAA 1936..."

Similarly, a payment of money or transfer of property to an associate of a shareholder in compliance with such an order is a payment for the purposes of s 109C(3) of ITAA 1936 (see para 5).

The Ruling states at para 9:

"Where a private company transfers property to a shareholder in compliance with a section 79 order, the rollover consequences in section 126-5 of the ITAA 1997 apply and the cost base of the shareholder's shares in the private company (if acquired after 20 September 1985) are both reduced pursuant to subsection 126-15(3) of the ITAA 1997 and increased pursuant to subsection 126-15(4) of the ITAA 1997."

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