Avoid the tax slug when you do a family law property settlement
Wednesday, March 26, 2014
“The ATO’s slugged me $9,000!” said my new client when she came to see me. “How rich! All I did was a property settlement with my ex.”
All of which was true, but what I soon discovered was that my client had not taken the most basic step of a property settlement- having orders made by the Family Court by consent. This is because she and her ex decided, at least in her case without the benefit of legal advice, to have an informal property settlement. And now she was wearing the consequences.
The deal was that she would transfer her share of the investment home to the ex, and he would transfer his share of the family home to her. Capital gains tax was not payable by him on the transfer of the family home, as there is an exemption for CGT on family homes. However, because there was a transfer by her to him of the investment property, capital gains tax was payable by my client, which was calculated at $9,000. It was too late the fix the mess, as the transfer had already occurred.
When the bill came in from the ATO, my client immediately phoned her ex, demanding that he pay the $9,000. His response- he couldn’t, because he had to pay stamp duty on the transfer. Again, because they hadn’t gone through the right procedures, tax was payable by him, when it could so easily have been avoided.
The moral of this tale? When splitting up, always get advice from someone who knows- an accredited family law specialist, and take simple actions approved by the government that avoid spending hard earned moneys on otherwise unnecessary taxes.
