- Tax laws frequently change.
- CGT exempt is different from income tax exempt.
- Not all asset transfers are exempt on a marriage breakdown.
You are acting for Jeremy in relation to the breakdown of his marriage with Chloe. Jeremy tells you that he and Chloe have reached a property agreement with the assistance of a mediator.
Jeremy explains that the family assets are the family home in Jeremy’s name, a share portfolio in Chloe’s name, and Chloe’s company, Tiger Sports Pty Ltd, which conducts extreme sports events worldwide and has a high net worth and celebrity client list. Chloe is the sole shareholder and director. Jeremy is a practising physiotherapist with a quiet suburban practice. They have three teenage children who, Jeremy ruefully admits, find dad somewhat boring and love to be involved with mum’s business.
While Chloe’s business has been very good, her expenses are very high given the need for international travel and the socialising required with marketing. So, while Chloe is asset rich she never has much surplus income. Jeremy’s patients are from low socio-economic backgrounds and he does a fair bit of pro bono work.
Chloe is sympathetic to Jeremy’s situation but she needs the house to look after the kids now. Jeremy reluctantly agrees to transfer the house, provided Chloe gives him the investment unit owned by Tiger Sports to live in, and substantial financial compensation.
So, the deal ultimately struck is that: (a) Jeremy will transfer the house to Chloe; (b) Tiger Sports will transfer the unit to Jeremy; (c) Tiger Sports will pay Jeremy $250,000; and (d) Chloe will transfer to Jeremy half the share portfolio.
You had a similar matter a few years ago and are aware of the peril of Division 7A of Income Tax Assessment Act 1936 (‘ITAA’) which provides that a payment of money and a transfer of property by a company to an associate of a shareholder can be taxed as a dividend.