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Edited version of your written advice
Authorisation Number: 1012898734986
Date of advice: 23 October 2015
Ruling
Subject: CGT rollover
Question 1
Can the XY Family Trust rollover properties to a former spouse under Subdivision 126A of the Income Tax Assessment Act 1997?
Answer
Yes
This ruling applies for the following periods:
Income year ending 30 June 2016
Income year ending 30 June 2017
Income year ending 30 June 2018
Income year ending 30 June 2019
The scheme commences on:
1 July 2015
Relevant facts and circumstances
The XY Family Trust (the Trust) was established in May 19XX.
Taxpayer A is the appointer of the Trust.
Company A is the trustee of the Trust. Taxpayer A and Taxpayer B hold one share each in Company A and are both directors of Company A. Taxpayer A and Taxpayer B are both beneficiaries of the Trust.
The Trust possesses several real estate properties.
As a result of a proposed matrimonial property settlement between Taxpayer A and Taxpayer B, Taxpayer B will renounce their rights as a beneficiary of the Trust and Taxpayer A will retain control of the Trust. Taxpayer B will have less than five properties transferred to them. From the settlement date Taxpayer B will accept sole liability and fully indemnify Taxpayer A in relation to all liabilities secured against or relating to the properties to be transferred to Taxpayer B.
The matrimonial settlement will be made by way of a Consent Order by the Family Court pursuant to section 79 of the Family Law Act 1975.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 126-5
Income Tax Assessment Act 1997 Section 126-15
Reasons for decision
Question 1
Can the XY Family Trust rollover less than five properties to a former spouse under Subdivision 126-A of the Income Tax Assessment Act 1997?
Subdivision 126-A of the ITAA 1997 deals with the capital gains tax (CGT) consequences of a marriage relationship breakdown. Broadly, it allows the consequences of CGT asset transfers between former spouses to be ignored in certain situations.
The CGT events that are trigger events for marriage breakdown rollover relief are:
• in a disposal case - CGT events A1 and B1
• in a creation case - CGT events D1, D2, D3 and F1
Section 126-15 provides that the roll-over consequences outlined in section 126-5 apply if the trigger event involves a company or a trustee (referred to as the transferor) and a spouse or former spouse (the transferee) of another individual because of:
• a court order under the Family Law Act 1975 (FLA) or under a state law, territory law or foreign law relating to breakdowns of relationships between spouses
• a maintenance agreement approved by a court under FLA s 87 or a corresponding agreement approved by a court under a corresponding foreign law
• something done under a binding financial agreement made under FLA Pt VIIIA or a corresponding foreign law
• something done under an award made in an arbitration under FLA s 13H or a corresponding state law, territory law or foreign law, or
• something done under a written agreement that is binding because of a state, territory or foreign law relating to breakdowns of relationships between spouses and that prevents a court making an order about matters to which the agreement applies, or that is inconsistent with the terms of the agreement in relation to those matters, unless the agreement is varied or set aside.
The transferee spouse or former spouse will take the CGT asset with the CGT attributes it had in the hands of the transferor company or trust.
The consequences for the transferor are that the capital gain or loss made from the CGT event is disregarded.
If the requirements of section 126-15 are satisfied, the roll-over is automatic - there is no need for any election to be made, nor can parties agree not to apply the provisions.
Summary
CGT event A1 will occur as a result of an order made under the FLA. The requirements of section 126-15 ITAA 1997 are satisfied and therefore the roll-over is automatic.
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