If a CGT asset is transferred to a transferee spouse by a company or a trustee of a trust, adjustments are required to the relevant cost base or reduced cost base of interests in the company or trust. These may be shares (or indirect interests in shares) in the company, units in a unit trust and other interests in the trust. They are reduced in value by an amount that reasonably reflects the fall in their market value as a result of the transfer of the CGT asset.
Example: Transfer of assets from a legal or a de facto marriage
Danny and Claudia jointly owned the following assets immediately before their marriage breakdown:
The family home
Shares in a company
On their divorce in October 2001, the Family Court approved the couple's voluntary asset agreement and made an appropriate court order by consent.
Claudia received the family home. Because it was acquired by the couple before 20 September 1985, she is taken to have acquired both her original interest in the home and Danny's share before that date. Claudia will not have to pay tax on capital gains when she sells the home.
Danny has no CGT obligation in relation to the transfer to Claudia of his share in the family home.
Danny received the shares and the holiday house which did not become his home.
Although the couple acquired these assets after 20 September 1985, Claudia's capital gain from the transfer of her share of these assets to Danny is disregarded under the marriage breakdown roll-over.
Danny is taken to have acquired Claudia's share of these assets at the time of transfer for her relevant cost base. If he were to sell the holiday home or the shares, he would calculate his capital gain or capital loss in respect of his original interest and the interest he acquired from Claudia.
Danny can choose to apply the indexation method or the discount method to work out the amount of any capital gain from his original interest because it was acquired before 21 September 1999.
Because he acquired Claudia's interest after that date he can only choose the discount method to work out any capital gain in relation to it. 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 base of the interest that he acquired from Claudia does not include any amount of indexation.End of example
Special rules apply to marriage breakdown roll-overs involving a controlled foreign corporation or certain non-resident trusts.
For more information, refer to Further information in this guide.