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Edited version of your written advice
Authorisation Number: 1051276744865
Date of advice: 31 August 2017
Ruling
Subject: Capital gains tax - marriage settlement
Question
Is the capital gain or capital loss made on the sale of the investment properties disregarded?
Answer
No.
This ruling applies for the following period:
Year ending 30 June 2016
The scheme commences on:
1 July 2015
Relevant facts and circumstances
You and your former spouse purchased two investment properties.
You and your former spouse filed for separation under the Family Court of Australia.
Family Court orders were made.
As part of your divorce settlement, you both agreed to sell your investment properties.
The sale proceeds were used to pay off existing debts and the remainder of the cash sale proceeds were forwarded to your former spouse.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 100-45
Income Tax Assessment Act 1997 Section 102-20
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 110-25
Income Tax Assessment Act 1997 Section 115-25
Income Tax Assessment Act 1997 Section 126-5
Reasons for decision
Capital gains tax
Section 102-20 advises that CGT is incurred when a CGT event takes place and you receive either a capital gain or a capital loss. A capital gain is not treated as a separate tax. Your net capital gain is added to your annual income and you are taxed at your marginal tax rate.
CGT events are the different types of transactions that may result in a capital gain or capital loss. The most common CGT event is CGT event A1. Section 104-10 explains that this event occurs whenever there is a change of ownership for a CGT asset, for example, when you dispose of an asset to someone else.
A CGT event A1 occurred when you and your ex-spouse transferred the property to the new owner.
In certain situations, the capital gain or capital loss made as a result of a CGT event can be disregarded or rolled over.
Where you transfer an asset to your spouse as a result of a marriage breakdown, there is an automatic roll over in certain cases. The roll over allows the transferor spouse to disregard any capital gain or capital loss that would be realised.
In order for marriage breakdown roll over to apply, the CGT event must happen because of an order of a court or court order made by consent under the Family Law Act 1975 or a similar law of a foreign country.
If the roll over applies, the spouse transferring the asset disregards any capital gain or capital loss they make on the transfer.
In your case, you did not transfer the ownership of your investments properties to your former spouse, rather you sold the properties to finance a cash settlement.
Section 126-5 of the Income Tax Assessment Act 1997 specifies that roll over relief can only occur if the asset is transferred to the other spouse. The scope of the marriage breakdown roll over provisions does not extend to cash settlements. Accordingly, the marriage breakdown relief provisions do not apply to your situation.
There are no other provisions that would allow you to disregard the capital gain in the circumstances you describe.
CGT event A1 occurred when you disposed of your ownership interest in the investment properties from you to a third party in the 2016 financial year. The funds received from the disposal were applied to satisfy an agreed marriage breakdown cash settlement and you are assessed on your portion of the capital gain on the disposal.
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