Taxation Determination
TD 96/19
Income tax: capital gains: if a person (A):
- •
- improves a pre-CGT asset to which subsection 160P(6) applies; and
- •
- disposes of the improved asset to A's spouse (B) under an order of the Court under the Family Law Act 1975 following marriage breakdown,
how does section 160ZZM apply:
- (i)
- to the disposal of the improved asset by A; and
- (ii)
- to any later disposal of the improved asset by B?
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Please note that the PDF version is the authorised version of this ruling.This ruling contains references to repealed provisions, some of which may have been rewritten. The ruling still has effect. Paragraph 32 in TR 2006/10 provides further guidance on the status and binding effect of public rulings where the law has been repealed or repealed and rewritten. The legislative references at the end of the ruling indicate the repealed provisions and, where applicable, the rewritten provisions.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
FOI status:
may be releasedFOI number: I 1014970| This Determination, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953 , is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, this Determination applies to years commencing both before and after its date of issue. However, this Determination does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20). |
1. Subsection 160P(6) of the Income Tax Assessment Act 1936 deems the improved asset to be two separate assets. Therefore, subsection 160ZZM(1) applies to each asset. We accept that each asset is disposed of, in terms of subsection 160ZZM(1), 'pursuant to an order' of the Family Court.
Disposal by the person
2. On the disposal of the separate assets by A to B, subsection 160ZZM(1) states that the other provisions of Part IIIA do not apply to either disposal. Therefore, there are no CGT consequences for A in respect of the disposal of the improved asset (or the separate assets) to B.
Later disposal by the person's spouse
3. Subsection 160ZZM(1) applies to the receipt by B of the separate assets. In B's hands, the asset which has been improved retains its pre-CGT status under paragraph 160ZZM(1)(c) and the improvement retains its post-CGT status under paragraph 160ZZM(1)(d).
4. There are no CGT consequences on the disposal of the pre-CGT asset, assuming that B does not further improve it.
5. There may be CGT consequences on the disposal of the improvement. Paragraph 160ZZM(1)(d) provides that the cost base of the improvement includes the indexed cost base, cost base, or reduced cost base ('relevant cost base') as applicable to A at the time of A's disposal to B. Whether a capital gain or capital loss arises on a disposal by B depends on whether or not the disposal consideration exceeds the relevant cost base.
Alternative view
6. An alternative view is either that section 160ZZM applies before subsection 160P(6), or has the effect that the disposal does not trigger the operation of subsection 160P(6). As a result, section 160ZZM applies just to the composite asset. We do not accept this view because it may extinguish a potential capital gains tax liability (if the improvement is later disposed of by B) rather than permit the deferral of a liability as is intended by section 160ZZM. This alternative view would not therefore promote the purpose or object of a roll-over provision such as section 160ZZM.
Example 1
Al acquires an asset in 1983. In 1990 he makes significant capital improvements, in terms of subsection 160P(6), to the asset. Following the breakdown of his marriage, he transfers the asset to his former spouse, Peggy, to comply with an order of the Court under the Family Law Act 1975.
What are the tax consequences? There are no CGT consequences for Al. Peggy acquires a pre-CGT asset and a post-CGT improvement. Peggy is deemed to have paid an amount equal to Al's relevant cost base as consideration for the improvement. In effect, Peggy is in the same position as Al, had he retained the assets.
Example 2
Peggy sells the asset and the improvement to Bud in 1995. What are the tax consequences? There are no CGT consequences in respect of the sale of the pre-CGT asset because the asset is deemed to have been acquired before 20 September 1985 under paragraph 160ZZM(1)(c). A capital gain or capital loss may arise in respect of the sale of the post-CGT improvement. This is calculated by reference to the relevant cost base of the improvement.
Commissioner of Taxation
15 May 1996
Previously issued as Draft TD 95/D26
References
ATO references:
NO NAT 95/9367-5; CGT Cell (CGTDET116) INB
Related Rulings/Determinations:
TD 10
TD 96/18
TD 96/21
Subject References:
acquisition of asset
composite assets
disposal of asset
divorce
Family Court Order
improvements
marriage breakdown
transfer of asset
Legislative References:
ITAA Part IIIA;
ITAA 160P(6);
ITAA 160P(6)(d);
ITAA 160ZZM;
ITAA 160ZZM(1);
160ZZM(1)(c);
ITAA 160ZZM(1)(d)
| Date: | Version: | Change: | |
| 15 May 1996 | Original ruling | ||
| You are here | 29 November 2006 | Original ruling + note | Repeal provision note |
| 19 May 2010 | Consolidated ruling | Addendum |