• CGT assets transferred by a company or trust

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    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    If a company or a trustee of a trust transfers a CGT asset to a spouse, adjustments are required to the relevant cost base and 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:

    Asset

    When purchased

    Cost

    The family home

    January 1985

    $75,000

    Holiday house

    December 1988

    $65,000

    Shares in a company

    March 1999

    $35,000

    On their divorce in October 2005, the Family Court approved the couple's 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 on 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 rollover.

    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.

    When he sells the assets, Danny can choose to apply the indexation method or the 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 base of the interest that he acquired from Claudia does not include any amount of indexation.

    Special rules apply to marriage breakdown rollovers involving a controlled foreign corporation or certain non-resident trusts.

    If these rules apply to you please seek help from the Tax Office or a recognised tax adviser.

    Last modified: 06 Oct 2009QC 18504