1011776127759 | Legal database

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Edited version of private ruling

Authorisation Number: 1011776127759

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Ruling

Subject: capital gains tax marriage breakdown roll-over

Question

Will the marriage breakdown roll-over under Subdivision 126-A of the Income Tax Assessment Act 1997 (ITAA 1997) apply to disregard a capital gain made by a trust on the transfer of an asset to an individual because of a court order under the Family Law Act 1975 (FLA 1975)?

Advice/Answers

Yes

This ruling applies for the following period

1 July 2010 to 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

Mr and Mrs X are directors of the trustee company.

The trustee company is the trustee of the trust.

Mr and Mrs X are the primary beneficiaries the trust.

The trustee as trustee for the trust owns shares and options in an unrelated company.

An Order of Consent of the Family Court of Australia provides that X0% of the shares and options are to be transferred to Mrs X's 'nominated entity'.

During a telephone conversation it was stated that Mrs X intends to transfer the shares and options to her own name.

Relevant legislative provisions

Family Law Act 1975

Division 126A of the Income Tax Assessment Act 1997

Section 126-5 of the Income Tax Assessment Act 1997

Section 126-5(4) of the Income Tax Assessment Act 1997

Section 126-5(5) of the Income Tax Assessment Act 1997

Section 126-15 of the Income Tax Assessment Act 1997

Reasons for decision

Summary

Any capital gain or capital loss that MVIT makes from the disposal of the shares and options to Mrs X (the CGT event) is disregarded: subsection 126-5(4) of the ITAA 1997.

Detailed reasoning

Marriage breakdown roll-over is available if the conditions set out in Subdivision 126-A of the ITAA 1997 are satisfied. Under section 126-5 of the ITAA 1997 there is a roll-over if a CGT event happens involving an individual (the transferor) and his or her spouse (the transferee), or a former spouse (also the transferee), because of a court order under the FLA 1975 or under a State, Territory or foreign law relating to breakdowns of relationships between spouses.

This roll-over is an automatic roll-over and will apply whether or not a taxpayer chooses for it to apply: Taxation Determination TD 1999/60

Section 126-15 of the ITAA 1997 extends this roll-over provision where the CGT event involves a trust as the transferor and the transferee is a spouse or former spouse of another individual.

Where the roll-over applies, a capital gain or capital loss the trust (transferor) makes from the CGT event is disregarded: subsection 126-5(4) of the ITAA 1997.

In your case, an Order by Consent of the Family Court of Australia has been made as a result of a marriage breakdown. The order provides that shares and options held by the trust are to be transferred to an entity of Mrs X's choosing. She has elected for the shares and options to be transferred to her.

You satisfy the requirements provided by section 126-5 of the ITAA 1997, as a result, the marriage breakdown roll-over is automatically applied.

Cost base information

The cost base for capital gains tax purposes is calculated in accordance with section 126-5(5) of the ITAA 1997.

Taxation Determination TD 1999/60 sets out that the marriage breakdown roll-over will allow the transferor to disregard a capital gain or capital loss that would otherwise arise as a result of the disposal of their interest in the asset. In effect, the transferee will make the capital gain or capital loss when they subsequently dispose of the asset.

Under subsection 126-5(5) of the ITAA 1997, if the asset was acquired by the transferor on or after 20 September 1985 and was transferred because of a court order under the FLA 1975, the first element of the asset's cost base in the hands of the transferee is the assets cost base in the hands of the transferor at the time the transferee acquired it.

That is, the cost base of the asset for you is the same as what the trust would have used to calculate the capital gain or loss if the shares and options had been sold instead of being transferred.

Therefore, in accordance with section 126-5(5) of the ITAA 1997, you retain the transferors cost base for the shares and options.

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