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  • Calculating your capital gain or loss – marriage or relationship breakdown

    If an asset is transferred to you under the marriage or relationship breakdown rollover, and you later dispose of the asset (or another CGT event happens), you need to know the asset's cost base to calculate your capital gain or loss.

    The first element of your cost base and reduced cost base will be the same as the cost base and reduced cost base of your spouse (or the company or trustee, if the asset was transferred from a company or trust) at the time of the transfer. Your cost base and reduced cost base also includes any costs incurred by you or the previous owner 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 are not included.

    If the transferor's cost base includes an amount of indexation, you may later have to recalculate the first element of your cost base to exclude that amount if you want to apply the CGT discount to your capital gain.

    If you acquired the asset from your spouse (or the company or trustee) before 21 September 1999, you may be able to use the indexation method when calculating your capital gain. To do this, you and your spouse’s combined period of ownership must be 12 months or more (or your and the company’s or trustee’s combined period of ownership).

    If you acquired the asset after 11.45am (by legal time in the ACT) on 21 September 1999, you can't use the indexation method when calculating your capital gain, but you may be able to use the discount method. You can use the discount method to calculate your capital gain if you and your spouse’s combined period of ownership is 12 months or more.

    If the period of ownership is less than 12 months, you use the 'other' method.

    Example: Transfer of assets from a marriage or relationship

    Danny and Claudia jointly owned the following assets immediately before their marriage breakdown:

    Asset

    When purchased

    Cost

    Family home

    January 1985

    $75,000

    Holiday house

    December 1988

    $65,000

    Shares in a company

    March 1999

    $35,000

    After their permanent separation in October 2016, the Family Court approved the couple's agreement and made an appropriate court order by consent.

    Danny transferred his interest in the family home to Claudia in March 2017 under the court order. Because it was acquired by the couple before 20 September 1985 and CGT rollover applied, she is taken to have acquired Danny's interest in the home before that date. Therefore, Claudia will not have to pay tax on any capital gains when she sells the home, either on her original interest in the home or the interest Danny transferred to her.

    Danny has no CGT obligation for the transfer of the family home.

    Claudia’s interests in the shares and the holiday house were transferred to Danny in March 2017 under the court order. The holiday house did not become his home.

    Although the couple acquired these assets after 20 September 1985, Claudia's capital gains from the transfer of her interests in these assets to Danny are disregarded under the marriage breakdown rollover.

    Danny is taken to have acquired Claudia's interests in these assets, including her cost bases, at the time of transfer. If he were to sell the holiday house or the shares, he would separately calculate his capital gain or loss for his original interest and the interest he acquired from Claudia.

    When he sells the assets, Danny can choose to apply the indexation method or discount method to work out the amount of any capital gain from his original interests because they were acquired before 21 September 1999.

    Because he acquired Claudia's interests after that date, he can only choose the discount method to work out any capital gain on them. However, in applying the 12-month ownership test for the purposes of the CGT discount, he can take into account the period that Claudia owned the interest.

    Danny will have to ensure that the cost bases of the interests he acquired from Claudia do not include any amount of indexation.

    End of example

    See also:

    Last modified: 17 Jul 2017QC 52261