• Consequences of rollover applying or not applying

    Find out about the capital gains tax (CGT) consequences for you if:

    If the rollover applies

    If the marriage or relationship breakdown rollover applies, then:

    • if you transfer an asset you disregard any capital gain or loss you make from the capital gains tax (CGT) event
    • if an asset (including a share of a jointly owned asset) is transferred to you, and the transferor acquired the asset on or after 20 September 1985, you're taken to have acquired the asset (or share of the asset), and the transferor's cost base for the asset, at the time it was transferred from your spouse (or a company or trustee).

    If the asset transferred to you was acquired by the transferor before 20 September 1985, you're also taken to have acquired the asset before that date. This means it's a pre-CGT asset and you disregard any capital gain or loss you make when you later dispose of the asset.

    However, if you make a major capital improvement to such an asset on or after 20 September 1985, you may be subject to CGT when you later dispose of it.

    See also:

    If the rollover doesn't apply

    The rollover doesn't apply if you and your spouse divide your property under a private or informal agreement (that is, not one of the court orders, formal agreements or awards).

    In this case:

    • if you transfer an asset, you must take into account any capital gain or loss you make when completing your tax return for that year
    • if an asset is transferred to you, you're taken to have acquired it at the time of transfer.

    Special rules may apply if the amount paid by one spouse for property owned by the other is greater or less than the market value of the property and they are not dealing at arm's length. In these cases, the transferee is taken to have paid the market value of the property and the transferor is taken to have received the market value of the property.

    You're said to be dealing 'at arm’s length' with someone if each of you acts independently and neither of you exercises influence or control over the other in connection with the transaction. It depends not only on the nature of your relationship, but also the quality of the bargaining between you.

    Example: Not dealing at arm's length

    Laurie and Jennie separated after living in a relationship for four years. To avoid legal costs, they decide to divide their assets without involving solicitors.

    During their relationship they occupied a townhouse owned by Laurie. As part of their informal arrangement, they decided Laurie would keep it.

    They also agreed that Laurie would transfer his half share of their rental property to Jennie in return for $6,000. Under the arrangement, Jennie would also become liable for the whole of the mortgage after the date of transfer.

    Little or no bargaining took place between Laurie and Jennie and no other assets were transferred.

    Jennie is taken to have paid the market value of Laurie’s share of the rental property. (The $6,000 she actually paid and the mortgage liability she assumed from Laurie are ignored.) This is because:

    • CGT rollover does not apply (as the transfer did not happen because of a court order or a relevant agreement or award)
    • Jennie and Laurie did not deal with each other at arm’s length in connection with the transfer.

    Laurie is taken to have received the market value of his share of the rental property at the time it was transferred to Jennie. This means, in working out his net capital gain for the year he transferred the property to Jennie, he takes into account a capital gain or loss based on the market value of his half share at that time.

    End of example

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    Last modified: 17 Jul 2017QC 52260