Conditions for the marriage breakdown rollover
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For the rollover to apply, the CGT event must have happened because of:
- an order of a court or court order made by consent under the Family Law Act 1975 or a similar law of a foreign country, or
- a court order under a state, territory or foreign law relating to de facto marriage breakdowns
The rollover also applies to CGT events that happen after 12 December 2006 because of one of the following:
- a financial agreement that is binding under section 90G of the Family Law Act 1975 (known as a 'binding financial agreement') or a corresponding written agreement that is binding because of a corresponding foreign law,
- an award made in an arbitration referred to in section 13H of the Family Law Act 1975 (known as an 'arbitral award') or a similar award under a corresponding state, territory or foreign law, or
- a written agreement that is binding because of a state, territory or foreign law relating to de facto marriage breakdowns and which cannot be overridden by an order of a court, except to avoid injustice. (These are referred to below as 'binding agreements used by de facto couples'.) The following agreements relating to de facto marriage breakdowns meet these requirements:
- a domestic relationship agreement or termination agreement that complies with subsection 47(1) of the New South Wales Property (Relationships) Act 1984
- a recognised agreement within the meaning of the Queensland Property Law Act 1974
- a cohabitation agreement that is a certificated agreement within the meaning of the South Australian De Facto Relationships Act 1996
- a personal relationship agreement or separation agreement that complies with subsection 62(1) of the Tasmanian Relationships Act 2003
- a financial agreement that complies with subsection 205ZS(1) of the Western Australian Family Court Act 1997
- a domestic relationship agreement or termination agreement that complies with subsection 33(1) of the Australian Capital Territory's Domestic Relationships Act 1994
- a cohabitation agreement or separation agreement that complies with subsection 45(2) of the Northern Territory's De Facto Relationships Act.
Currently, Victoria does not have laws providing for written agreements relating to de facto marriage breakdowns.
Timing of the CGT event
Because certain changes to the marriage breakdown rollover rules apply to CGT events that happen after 12 December 2006 it is important to know when those events happen. Appendix 1 contains information about the timing of CGT events.
If an asset is transferred under a contract, the CGT event happens when the contract is entered into.
- A binding financial agreement may be a contract. The time at which a contract is entered into depends on the terms and conditions of the agreement and the relevant legislation being satisfied such 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 de facto couple may be a contract. The time at which a contract is entered into depends on the terms and conditions of the agreement and the relevant legislation being satisfied such that the agreement can take effect.
If there is no contract, the CGT event happens when the change of ownership of the asset occurs.
Transfers made because of a court order or arbitral award are not made under a contract. Therefore, no CGT event happens until the asset is transferred under the order or award.
If the asset is transferred under an agreement to which CGT event B1 (see Appendix 1) applies, the event happens when use of the asset passes.
Binding financial agreements can be entered into before, during or after marriage. Arbitral awards allow property and financial matters of married couples to be settled using arbitration. These arrangements allow separating couples to settle their affairs without having to go through court processes, which are often costly and protracted.
The rollover is not available for transfers that happen on the breakdown of a same-sex relationship.
Additional rollover conditions for agreements that do not require court intervention
For transfers that happen because of a binding financial agreement, or a binding agreement used by a de facto couple, the rollover only applies if at the time of the transfer:
- the spouses involved are separated
- there is no reasonable likelihood of cohabitation being resumed, and
- the transfer happened because of reasons directly connected with the breakdown of the marriage or of the de facto marriage.
The transfer may not be directly connected with the breakdown if, for example:
- the spouses had an agreement before the breakdown of their marriage or de facto marriage stating that the particular property was to be transferred between them for other reasons not directly related to the marriage breakdown, or
- the agreement provided for the transfer of non-specific property, the transfer does not occur for a considerable time (say, more than 12 months) after the agreement, and factors are present that suggest the transfer was not directly connected to the marriage breakdown.
Relevant CGT events
For the rollover to apply, one of the following events must happen. The transferor:
- disposes of an asset to the transferee spouse (CGT event A1)
- enters into an agreement with the transferee spouse under which:
- the right to use and enjoy a CGT asset passes to the transferee spouse
- title in the asset will or may pass to the transferee spouse at the end of the agreement (CGT event B1). There is no rollover if title in the CGT asset does not pass to the transferee spouse when the agreement ends
- creates a contractual or other right in favour of the transferee spouse (CGT event D1)
- grants an option to the transferee spouse or renews or extends an option granted to them (CGT event D2)
- owns a prospecting or mining entitlement, or an interest in one, and grants the transferee spouse a right to receive income from operations carried on by the entitlement (CGT event D3), or
- is a lessor and grants, renews or extends a lease to the transferee spouse (CGT event F1).
There is no rollover for the transfer of trading stock.
Last modified: 25 May 2020QC 27893