Private ruling: Application of section 109RC of the Income Tax Assessment Act 1936 to a payment received as part of a family court order
Date of advice: 21 February 2022
Published: May 2022
Ruling period: Income year ended 30 June 20XX
Date scheme commenced: DDMMYYYY

Ruling: Q1: Will the dividend of $X paid to you by Company A as part of a family court order be franked under section 109RC of the ITAA 1936? | A1: Yes. Under section 109RC of the ITAA 1936, a dividend may be franked if it is taken to have been paid because of a family law obligation. A 'family law obligation' is defined in section 109ZD of the ITAA 1936 as meaning 'an order, agreement or award mentioned in paragraph 126-5(1)(a), (b), (d), (e) or (f) of the Income Tax Assessment Act 1997 ' (ITAA 1997). Paragraph 126-5(1)(a) of the ITAA 1997 states 'a court order under the Family Law Act 1975 or under a *State law, *Territory law or *foreign law relating to breakdowns of relationships between spouses'. Further, under subsection 109RB(3) of the ITAA 1936, the dividend can only be franked if: a. The dividend is franked at the private company's benchmark franking percentage for the 'franking period in which the dividend is taken to be paid; or b. if the private company does not have a benchmark franking percentage for the period--the dividend is franked at a franking percentage of 100%. Assuming that the dividend is franked according to subsection 109RB(3) of the ITAA 1936, section 109RC of the ITAA 1936 will apply to the payment made to the taxpayer in the 20ZZ income year and allow the dividend to be franked as the payment was made pursuant to a family law obligation.

Relevant facts and circumstances: You were engaged in protracted Family Court proceedings to divide matrimonial property. On DDMMYYYY, the Family Court made interim orders which included Orders that you receive a partial property settlement comprising an amount of $X paid to you by Company A. The due date for the 20XX income tax return lodgement for Company A was deferred and is yet to be lodged.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 109RC | Income Tax Assessment Act 1936 section 109ZD | Income Tax Assessment Act 1936 subsection 109RB(3) | Income Tax Assessment Act 1997 paragraph 126-5(1)(a)