Consequences of the rollover not applying
If you and your spouse divide your property under a private or informal agreement (not because of a court order, a binding financial agreement, an arbitral award or another agreement or award referred to above), the marriage or relationship breakdown rollover does not apply.
If this is the case, you must take any capital gain or capital loss you make on the transfer of the asset into account in working out your net capital gain (or net capital losses carried forward to future years) on your tax return for that income year.
The spouse to whom the asset is transferred is taken to have acquired the asset at the time of transfer.
Special rules may apply if a spouse receiving property does not pay anything for it, or 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 are 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 103: Rollover does not apply
Laurie and Jennie separated after living in a relationship for four years. To avoid legal costs, they decided that they would divide their assets without involving solicitors.
During their relationship they had occupied a townhouse owned by Laurie. As part of their informal arrangement, they decided Laurie would keep it. They owned separate household items and decided each of them would keep whatever they had bought.
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:
- a CGT rollover did not apply (as the transfer did not happen because of a court order or a relevant agreement or award), and
- 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 income year he transferred the property to Jennie, he takes into account a capital gain or capital loss, based on the market value of his half share at that time.End of example
If you are a deceased person’s legal personal representative or a beneficiary of a deceased estate, see this section to find out about the special CGT rules that apply.
When a person dies, the assets that make up their estate can:
- pass directly to a beneficiary (or beneficiaries), or
- pass directly to their legal personal representative (for example, their executor) who may dispose of the assets or pass them to the beneficiary (or beneficiaries).
A beneficiary is a person entitled to assets of a deceased estate. They can be named as a beneficiary in a will or they can be entitled to the assets as a result of the laws of intestacy (when a person dies without having made a will).
A legal personal representative can be either:
- the executor of a deceased estate (that is, a person appointed to wind up the estate in accordance with the will), or
- an administrator appointed to wind up the estate if the person does not leave a will.