Practice Update August 2024

31 July 2024

FAMILY LAW FINANCIAL SETTLEMENTS

Capital gain tax considerations

Capital gain tax or CGT involves the calculation of a net capital gain (or loss) on the sale, transfer or disposal of a piece of property to another party. This can include real estate, shareholdings, leases or other types of assets. Items exempt from CGT include:

  • Principal place of residence.
  • Assets acquired before 20 September 1985.
  • Cars and motor vehicles.
  • Collectables worth less than $500.
  • Some personal assets are less than $10,000.
  • Sale of a small business asset if specific tests are met.

The Australian Taxation Office offers divorcing couples some tax relief through a marriage or relationship breakdown rollover, which means that capital gains (or losses) are disregarded in this particular instance.

The marriage or relationship breakdown rollover relief will only apply when a property transfer (from one spouse to another) results from a formal court order, binding financial agreement or court award.

This rollover ensures the transferor spouse disregards a capital gain or loss that would otherwise arise. In effect, the one who receives the asset (the transferee spouse) will make the capital gain or loss when they dispose of the asset. The asset’s cost base is transferred to you if you are the transferee spouse.

Timing of the CGT event

It is essential to know when specific marriage or relationship breakdown rollover rules changes apply to CGT events after 12 December 2006. If an asset was transferred under a contract, the CGT event happened when the contract was entered into.

A binding financial agreement may be a contract. The time a contract is entered depends on the terms and conditions of the agreement and the relevant legislation being satisfied so that the agreement can take effect. In the case of a binding financial agreement, a separation declaration has to be made under section 90DA of the Family Law Act 1975 before the agreement can take effect.

A binding agreement used by a marriage or relationship breakdown couple may be a contract. The time a contract is entered depends on the terms and conditions of the agreement and the satisfaction of the relevant legislation so that the agreement can take effect.

If there is no contract, the CGT event happens when the asset’s ownership change occurs.

Transfers made according to a court order or arbitral award are not made under a contract. Therefore, no CGT event occurs until the asset is transferred under the order or award. Binding financial agreements can be entered into before, during or after marriage or relationship. Arbitral awards allow property and financial matters of separating couples to be settled using arbitration. These arrangements allow separating couples to settle their affairs without going through court processes, which are often costly and protracted.

Calculation of CGT

To calculate your capital gain or loss when a later CGT event happens, the first element of your cost base and reduced cost base are the same as the cost base and reduced cost base of your spouse (or the company or trustee) at the time of the transfer. Your cost base and reduced cost base also include any costs incurred by you or the previous owner (your spouse, the company or trustee) in transferring the particular asset on the breakdown of your marriage or relationship, such as conveyancing costs and stamp duty. General legal costs relating to the breakdown or incurred in seeking a property settlement and payments made under a Family Court order representing the increase in value of the CGT asset are not included.

Consequences of the rollover

You transfer the asset

If you transferred the asset, the consequences of the rollover are:

  • you disregard any capital gain or capital loss for assets acquired before 20 September 1985
  • for assets acquired on or after 20 September 1985, the marriage or relationship breakdown rollover ensures you disregard any capital gain or loss you make from the CGT event involving you and the transferee spouse.

The asset is transferred to you

Assets acquired before 20 September 1985 – Suppose a CGT asset, including a share of a jointly owned asset, was transferred to you because of the breakdown of your marriage or relationship and was acquired by the transferor before 20 September 1985. In that case, you are also taken to have acquired the asset before that date. You disregard any capital gain or loss you make when you dispose of the asset later.

However, suppose you made a significant capital improvement to that asset after 20 September 1985. In that case, you may be subject to CGT when you dispose of it, or another CGT event happens to that asset.

Assets acquired on or after 20 September 1985 – The rules differ if the transferor acquired the asset on or after 20 September 1985. In this case, if you received the CGT asset (or a share of a jointly owned asset) and there was a marriage or relationship breakdown rollover, you are taken to have acquired the asset (or share of the asset) at the time it was transferred from your spouse (or the company or trustee).

Cash settlements

Changes to the law ensure that no CGT liability arises about ending spouses’ rights that directly relate to their marriage or relationship breakdown, including if they receive cash as part of a breakdown settlement. No CGT liability arises if the spouses are separated when the rights end, and there is no reasonable likelihood of cohabitation being resumed. 

How superannuation is viewed in a divorce

The Family Law Act 1975 views superannuation as property that should be split during a divorce. This differs from other assets as superannuation is usually held within a trust, meaning it won’t be converted into a cash asset.

How the court divides superannuation depends on whether the fund is self-managed or regulated by the Australia Prudential Regulation Authority (APRA).

If the fund is self-managed, the parties involved have to abide by their fund deeds. Different super funds have different rules. Some will allow an immediate division of assets, while other funds require that the parties involved wait until retirement or preservation age before they can access superannuation.

Individuals who were party to a marriage can apply to the court for superannuation orders up to 12 months after the divorce orders are issued. Parties who are separated and seeking or waiting for divorce orders to be made by the court may apply for superannuation at any time during the process.

For de facto relationships, parties can seek superannuation orders within 24 months from the date of separation. To be eligible, the party must have been in a de facto relationship for two years. If a child is involved, the two-year rule does not apply. Even if you are outside these periods, the court may grant leave to one of the parties to obtain superannuation orders if they are experiencing significant hardship and have a strong claim.

The amount of superannuation to be split

Generally, agreement is reached between the parties without going to the family court, but matters the court takes into account include:

  • The length of the relationship (marriage or De Facto)
  • Valuation of the Superannuation of each party
  • Financial contributions of each party during the partnership
  • Domestic (and other) contributions made during the partnership
  • The welfare of children or dependents
  • Differences in income between the parties
  • The financial responsibilities of each party

While the division of the entire asset pool is seldom 50/50, superannuation may sometimes be the exception to that rule. If the parties’ relationship commenced before accumulating much superannuation, the superannuation may be distributed between the parties in a manner that leaves each party with a similar amount.

Of course, variations in superannuation division will occur, but it will depend on the abovementioned factors and the negotiations between the parties involved, their legal representatives, and the court.

Tax traps arising from family breakdowns

CGT issues

The transfer will usually occur for no monetary or non-monetary consideration, meaning that the market value substitution rules will have application. The application of the market value substitution rules implies that:

  • The beneficial owner will be taken to have received the property’s market value.
  • The acquiring party will obtain a market value cost base.

However, various exemptions, concessions, and CGT rollovers are possible.


Main residence exemption

Most of us know that capital gain from a dwelling is disregarded to the extent that the dwelling is the primary residence of the individual taxpayer throughout ownership. There are specific rules that deal with absences, which may need to be considered, including:

  • Spouses living permanently, separately, and apart cannot have different primary residences.
  • The principal residence analysis can be applied separately if multiple residences are owned independently.
  • To avoid future disputes, an assessment of any elections necessary to obtain from the transferee spouse must occur at the relevant time and be mutually understood by both parties.


31 March 2025
A foreign entrepreneur’s guide to starting a business in Australia Starting a business as a foreign entrepreneur can be an exhilarating way to access new markets, diversify investment portfolios, and create fresh opportunities. Many countries around the globe provide pathways for non-residents and foreign nationals to register businesses. However, understanding different countries’ legal requirements, procedures, and opportunities is crucial for success. In this issue, we will navigate the process of establishing a business in Australia to help foreign entrepreneurs looking to register a company in Australia. Key takeaways Foreign entrepreneurs can fully own Australian businesses with no restrictions on ownership. Registered office and resident director requirements are key legal considerations. ABN and ACN are essential for business registration. The application process can be done online, simplifying the process for foreign entrepreneurs. Why register a business as a foreign entrepreneur? There are various reasons why a foreigner may want to register a company in another country. These reasons include expanding into a foreign market, taking advantage of favourable tax laws, leveraging local resources, or benefiting from business-friendly regulatory environments. Before registering, conducting thorough market research to assess whether establishing a business abroad aligns with your objectives is essential. Understanding the country’s political and economic climate, legal framework, and tax system will help ensure the success of your venture. The general process for registering a business as a foreign entrepreneur While the exact requirements may differ from country to country, some common steps apply to most jurisdictions when registering a company as a foreign entrepreneur: Choosing the business structure The first step is deciding on the appropriate business structure. The structure determines liability, taxation, and governance. Common types of business structure include: Sole proprietorship: A single-owner business where the entrepreneur has complete control and entire liability. Limited Liability Company (LLC): Offers liability protection to the owners, meaning their assets are not at risk. Corporation (Inc.): A more complex structure that can issue shares and offers limited liability to its shareholders. Different countries have varying rules regarding foreign ownership, so understanding the options available is essential before registering a company. Registering with local authorities Regardless of the jurisdiction, most countries require you to register your company with the relevant local authorities. This process typically includes submitting documents such as: Company name and business activities: You need to choose a unique company name that adheres to local naming regulations. Articles of incorporation: This document outlines the company’s structure, activities, and bylaws. Proof of identity : As a foreign entrepreneur, you will likely need to provide a passport and other identification documents. Proof of address: Many countries require a physical address for the business, which may be the address of a registered agent or office. Tax Identification Number (TIN) and bank accounts After registering the company, you will typically need to apply for a tax identification number (TIN), employer identification number (EIN), or equivalent, depending on the jurisdiction. This number is used for tax filing and reporting purposes. Opening a business bank account is another critical step. Some countries require a local bank account for business transactions, and you may need to visit the bank in person or appoint a local representative to help with the process. Complying with local regulations Depending on the type of business, specific licenses and permits may be required to operate legally. For example, food service, healthcare, or transportation companies may need specific licenses. Compliance with local labour laws and intellectual property protections may also be necessary. Appoint directors and shareholders To register a company, you’ll need to appoint at least one director who resides in Australia. The director will be responsible for ensuring the company meets its legal obligations. You will also need to appoint shareholders, who can be either individuals or corporations. For foreign entrepreneurs, the requirement for a resident director is one of the key challenges. If you don’t have a trusted individual in Australia to act as the director, you can engage a professional service to fulfil this role. This ensures your business remains compliant with local regulations. Choose a company name Next, you need to choose a company name. The name should reflect your business but must be unique and available for registration. You can check the availability of a name through the Australian Securities & Investments Commission (ASIC) website. Remember that the name must meet legal requirements and cannot be similar to an existing registered company. If you’re unsure, seeking professional advice is always a good move. Apply for an Australian Business Number (ABN) and Australian Company Number (ACN) Once you’ve selected your business structure and appointed your directors, it’s time to apply for an Australian Business Number (ABN) and an Australian Company Number (ACN). These are essential for running your business in Australia. ABN: This unique 11-digit number allows your business to interact with the Australian Taxation Office (ATO) and other government agencies. ACN: This 9-digit number is allocated to your company upon registration with ASIC and serves as your business’s unique identifier. You can easily apply for both numbers online through the Australian Business Register (ABR) and the ASIC websites. Register for Goods and Services Tax (GST) If your business expects to earn more than $75,000 in revenue annually, you must register for GST. This means your business will charge customers an additional 10% on goods and services. The GST registration threshold for non-profit organisations is higher at $150,000 annually. If your company is below these thresholds, registering for GST is optional, but registration becomes mandatory once it exceeds the limit. Set up a registered office Every Australian company must have a registered office in Australia. This is where all official government documents, including legal notices, are sent. You can use your premises or hire a foreign company registration service to provide a virtual office address. Common challenges for foreign entrepreneurs While the process is relatively simple, there are a few hurdles that foreign entrepreneurs may encounter when registering a company in Australia: Resident director requirement: You’ll need a director residing in Australia. If you don’t have one, you’ll need to engage a service provider to fulfil this role. Understanding local tax laws: Australia has a corporate tax rate of 25% for small businesses with annual turnovers of less than $50 million. However, larger companies with turnovers exceeding $50 million are subject to a standard corporate tax rate of 30%. Foreign entrepreneurs must also understand the implications of the Goods and Services Tax (GST) and payroll tax. Compliance with Australian regulations: Navigating Australia’s various regulations and compliance requirements can be time-consuming. An accountant or adviser can help you in this regard. FAQs Can I register a company in Australia as a foreigner? Yes, foreign entrepreneurs can register a company in Australia. The only requirement is to have a resident director. Do I need to be in Australia to register a company? No, you can complete the registration process online. However, you must appoint a resident director. Do I need an Australian bank account to start a business in Australia? You will need an Australian bank account to handle your business’s finances and transactions. Can I operate my Australian company from abroad? Yes, you can operate your company remotely, but you must comply with all local tax laws and regulations.
5 March 2025
Do bucket companies help build wealth at retirement? Bucket companies are familiar with wealth-building strategies, particularly as individuals approach retirement. By distributing profits to a bucket company, individuals can benefit from reduced tax liabilities and enhanced investment growth opportunities. This essay explores how bucket companies influence wealth building at retirement, their impact on age pension eligibility and tax positions, and strategies to maximise economic outcomes. Understanding bucket companies A bucket company is used to receive distributions from a family trust. Instead of distributing profits directly to individuals, which may attract high marginal tax rates, the trust distributes income to the bucket company, which is taxed at the corporate tax rate (currently 30% or 25% for base rate entities). The company can then retain the after-tax profits for reinvestment or distribution. Impact on wealth building at retirement Tax efficiency and compounding growth Using a bucket company can result in significant tax savings compared to personal marginal tax rates, reaching up to 47% (including the Medicare levy). Retained earnings within the bucket company are taxed lower, allowing more capital to compound over time. Example of Tax Efficiency: Income DistributedPersonal Marginal Tax (47%)Bucket Company Tax (25%)Savings $100,000$47,000$25,000$22,000 Over 20 years, if the tax savings of $22,000 per year are reinvested at an annual return of 7%, they would accumulate to approximately $1,012,000. Age pension and means testing The age pension is subject to both an income test and an assets test. Holding wealth in a bucket company can impact these tests: Income Test: Distributions to individuals count as assessable income. Retained profits within the company do not. Assets Test: The value of the bucket company shares is counted as an asset, which may affect pension eligibility. Strategic use of the company can help individuals control their assessable income, potentially increasing their age pension entitlement. Strategies to maximise economic outcomes Timing of Distributions By deferring distributions from the bucket company until retirement, individuals can benefit from lower marginal tax rates or effectively use franking credits. Dividend Streaming Using franking credits from company-paid tax can reduce personal tax liabilities when distributed dividends. Investment within the Company Reinvesting retained earnings within the bucket company in diversified assets can enhance compounding returns. Family Trust Distribution Planning Strategically distributing income to lower-income family members before reaching the bucket company can reduce overall tax. Winding Up or Selling the Company Carefully planning an exit strategy to wind up the b ucket company or sell its assets can minimise capital gains tax liabilities. Example of a retirement strategy with a bucket company Assume that John and Mary, aged 65, have distributed $100,000 annually from their family trust to their bucket company over 20 years. Corporate tax paid: 25% Annual return on reinvestment: 7% After-tax reinvested earnings annually: $75,000 YearAnnual ReinvestmentTotal Accumulated Amount (7% p.a.)5$75,000$435,30010$75,000$1,068,91420$75,000$3,867,854 At retirement, they can distribute dividends with franking credits to minimise personal tax and supplement their income while potentially qualifying for some age pension benefits due to strategic income timing. FAQ What is a bucket company? A bucket company is a corporate entity that receives trust distributions, taxed at the corporate rate rather than personal marginal rates. How does a bucket company impact my age pension eligibility? While retained earnings do not affect the income test, the value of the company shares is considered an asset under the assets test. Can bucket companies help reduce tax during retirement? Yes, by using franking credits and strategic distribution timing, bucket companies can minimise tax liabilities. Are there risks associated with using bucket companies for retirement planning? Yes, risks include changes in tax laws, corporate compliance costs, and potential capital gains tax upon winding up the company. Should I consult a professional before using a bucket company? Absolutely. Professional advice is essential to ensure compliance with tax laws and optimise wealth-building strategies.
11 February 2025
Personal super contribution and deductions
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