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Subject: Capital gains tax - marriage breakdown rollover- disposal

Question 1:

Does the marriage breakdown rollover apply where you and your spouse enter into a binding financial agreement to transfer shares and real estate?

Answer:

Yes.

Question 2:

Does the marriage breakdown rollover apply where your adult children transfer shares to your spouse?

Answer:

No.

This ruling applies for the following period:

Year ended 30 June 2013

The scheme commenced on:

1 July 2012

Relevant facts:

You and your spouse have separated.

You have instructed a solicitor who has prepared Family Court consent orders whereby:

The jointly owned family home acquired prior to 20 September 1985 will be transferred to you.

The property owned by the family company will be transferred to your spouse.

Shares you owned in the family company will be transferred to your spouse.

The Family Court consent orders will be made prior to the any transfers being undertaken.

Your adult children also own shares in the family company and will transfer the shares to your spouse as part of the Family Court consent orders.

Relevant legislative provisions:

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 118-110

Income Tax Assessment Act Subdivision 126A

Reasons for decision:

Section 126-5 of the Income Tax Assessment Act 1997 outlines that if an asset or an interest in an asset is transferred by a person to their spouse as a result of the breakdown of their marriage or relationship; rollover applies provided certain conditions are met.

The conditions include that the transfer has to happen because of a court order, a binding financial agreement made under Part VIIIA of the Family Law Act 1975, an arbitral award or a binding agreement or award relating to the break down of relationships between spouses.

Subsection 126-5(2) of ITAA 1997 outlines there must be a relevant CGT event such as A1 and B1 (a disposal case) and CGT events D1, D2, D3 and F1 (a creation case).

For transfers that happen because of a binding financial agreement, an arbitral award or binding agreement or award relating to the breakdown of relationships between spouses, rollover only applies If the CGT

You and you spouse are separated and there is no reasonable likelihood of reconciliation. You will enter into a binding financial agreement under the Family Law Act 1975. Under the arrangement the property transfer will result in a relevant CGT event happening. Accordingly the marriage breakdown rollover will apply to you.

The transfer by your children of their share in the family company is not covered by the marriage breakdown rollover provisions and accordingly the provisions do not apply to the transfer by them.

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