CGT events that apply to marriage or relationship breakdown rollover
The rollover applies to a range of capital gains tax (CGT) events involving the transfer of ownership of assets, where those events occur as a result of a court order, agreement or award.
For rollover to apply, one of the following events must happen. The transferor:
- disposes of an asset to the transferee spouse (CGT event A1)
- enters into an agreement with the transferee spouse under which
- the right to use and enjoy a CGT asset passes to the transferee spouse
- title in the asset will, or may, pass to the transferee spouse at the end of the agreement (CGT event B1)
Note: There is no rollover if title in the CGT asset does not pass to the transferee spouse when the agreement ends.
- creates a contractual or other right in favour of the transferee spouse (CGT event D1)
- grants an option to the transferee spouse or renews or extends an option granted to them (CGT event D2)
- owns a prospecting or mining entitlement, or an interest in one, and grants the transferee spouse a right to receive income from operations carried on by the entitlement (CGT event D3), or
- is a lessor and grants, renews or extends a lease to the transferee spouse (CGT event F1).
There is no rollover for the transfer of trading stock.
Timing of the CGT event
Because certain changes to the marriage or relationship breakdown rollover rules apply to CGT events that happen after particular dates, it is important to know when those events happen. The Summary of capital gains tax events contains information about the timing of CGT events.
If an asset is transferred under a contract, the CGT event happens when the contract is entered into.
- A binding financial agreement may be a contract. The time at which a contract is entered into depends on the terms and conditions of the agreement and the relevant legislation being satisfied such that the agreement can take effect. In the case of a binding financial agreement, a separation declaration has to be made under section 90DA of the Family Law Act 1975 before the agreement can take effect.
- A binding agreement used by a marriage or relationship breakdown couple may be a contract. The time at which a contract is entered into depends on the terms and conditions of the agreement and the relevant legislation being satisfied such that the agreement can take effect.
If there is no contract, the CGT event happens when the change of ownership of the asset occurs.
Transfers made because of a court order or arbitral award are not made under a contract. Therefore, no CGT event happens until the asset is transferred under the order or award.
Note: If the asset is transferred under an agreement to which CGT event B1 applies, the event happens when use of the asset passes to the transferee spouse.
Binding financial agreements can be entered into before, during or after marriage or relationship. Arbitral awards allow property and financial matters of separating couples to be settled using arbitration. These arrangements allow separating couples to settle their affairs without having to go through court processes, which are often costly and protracted.
Agreements that do not require court intervention
For transfers that happen because of a binding financial agreement or a binding agreement used by a separating couple, rollover only applies if at the time of the transfer:
- the spouses involved are separated
- there is no reasonable likelihood of cohabitation being resumed
- the transfer happened because of reasons directly connected with the breakdown of the marriage or relationship.
The transfer may not be directly connected with the breakdown if, for example:
- the spouses had an agreement before the breakdown of their marriage or relationship stating that the particular property was to be transferred between them for other reasons not directly related to the marriage or relationship breakdown, or
- the agreement provided for the transfer of non-specific property, the transfer does not occur for a considerable time (say, more than 12 months) after the agreement, and factors are present that suggest the transfer was not directly connected to the marriage or relationship breakdown.