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Edited version of your private ruling
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Subject: Capital gains tax - sale of dwelling owned by trust - marriage breakdown roll-over
Question:
Is the capital gain or capital loss that you as trustee for trust A make when you transfer title to a dwelling pursuant to a binding financial agreement disregarded?
Answer:
Yes.
This ruling applies for the following period:
Year ended 30 June 2013
The scheme commenced on:
1 July 2012
Relevant facts:
Company A as trustee of trust A purchased a dwelling.
A beneficiary of trust A has been residing in the dwelling from this date.
The beneficiary is the sole director and due to a breakdown in that person's marriage the dwelling is to be transferred to them as provided for in a binding financial agreement made in accordance with either:
a) a court order under the Family Law Act 1975 or a corresponding foreign law;
(b) a court-approved maintenance agreement under section 87 of that Act or a similar agreement under a foreign law; or
(c) a court order under a State, Territory or foreign law relating to de facto marriage breakdowns.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 104-5
Income Tax Assessment Act 1997 Section 126-5
Income Tax Assessment Act 1997 Subsection 126-5(2)
Income Tax Assessment Act 1997 Subsection 126-5(4)
Income Tax Assessment Act 1997 Section 126-15
Income Tax Assessment Act 1997 Subsection 126-15(1)
Reasons for decision:
Marriage breakdown roll-over is available if certain conditions are satisfied. This rollover is an automatic rollover and will apply whether or not a taxpayer chooses for it to apply. The roll-over applies as a same-asset roll-over on a disposal of a capital gains tax (CGT) asset to another entity. Certain attributes of the asset are transferred to the receiving entity as part of the disposal.
The provisions also deal with a CGT event involving a company or a trustee and a spouse or former spouse. The roll-over consequences apply if the trigger event or CGT event involves a company or a trustee and a spouse or former spouse of another individual because of:
(a) a court order under the Family Law Act 1975 or a corresponding foreign law;
(b) a court-approved maintenance agreement under section 87 of that Act or a similar agreement under a foreign law; or
(c) a court order under a State, Territory or foreign law relating to de facto marriage breakdowns.
This roll-over is only relevant to certain CGT events which include the disposal of a CGT asset. If the rollover applies, then a capital gain or loss you make from the CGT event is disregarded. This is so that a capital gain or capital loss that may arise when a CGT asset is transferred from you as trustee for the trust to the transferee spouse as a result of a marriage breakdown will not occur. There will however, be CGT implications when the transferee spouse who receives the asset disposes of it.
The relevant CGT event in this instance will be the transfer of the CGT asset.
In this case, you will transfer the property as a result of an order from the Family Court and the CGT event has been a roll-over of an asset from the trust to the spouse or former spouse as required by an order of the Family Court.
Note 1: If the beneficiary uses the property as their main residence, section 118-180 of the Income Tax Assessment Act 1997 (ITAA 1997) will apply to determine their entitlement to a main residence exemption.
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