1052027968589 | Legal database

Disclaimer
You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of private advice

Authorisation Number: 1052027968589

Date of advice: 5 September 2022

Ruling

Subject: CGT - capital proceeds

Question

Are you liable for capital gains tax (CGT) on the dispose of your ownership interest in the property as ordered by the Federal Circuit Court?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You and your ex-spouse jointly own a property (the property).

Your ownership interest of the property was XX%.

Due to the marriage breakdown, you and your ex-spouse were directed by the Federal Circuit Court order to sell the property.

The Court order states that upon settlement of the sale of the property the proceeds of sale are to be disbursed to different parties with the balance of the proceeds of sale being paid to your ex-spouse.

The property was sold for a capital gain, but you did not receive any payment of your share from the sale.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20

Income Tax assessment Act 1997 Section 103-10

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 108-5

Income Tax Assessment Act 1997 Section 116-20

Reasons for decision

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make a capital gain or loss as a result of a CGT event. The most common event is CGT event A1 which happens when a person disposes of a CGT asset to someone else.

Under section 108-5 of the ITAA 1997 a CGT asset is any kind of property, or a legal or equitable right that is not property. CGT assets include part of or an interest in property or a legal or equitable right that is not property.

Subsection 104-10(3) of the ITAA 1997 provides that you dispose of a CGT asset when you either enter into a contract for its disposal, or where no contract exists, when the change of ownership occurs.

Subsection 104-10(4) of the ITAA 1997 provides that you make a capital gain if the capital proceeds from the disposal are more than the asset's cost base and you make a capital loss if those capital proceeds are less than the asset's reduced cost base.

Section 116-20 of the ITAA 1997 provides the definition of capital proceeds. Capital proceeds are the total of the money you have received or are entitled to receive and the market value of any other property you have received or are entitled to receive.

These terms are further defined in section 103-10. It states this Part (Part 3-1) and Part 3-3 apply to you as if you had received money or other property if it has been applied for your benefit (including by discharging all or part of a debt you owe) or as you direct.

In your case, you and your ex-spouse sold the property as ordered by the Court, which triggered CGT event A1. You were ordered to disburse the proceeds of sale to different parties. All disbursements were debts owed by you including the payment of your share of the remainder to your ex-spouse.

Although you did not receive any payment of your share from the sale, it is considered it has been applied for your benefit.

Therefore, you are liable for CGT on the dispose of your ownership interest in the property.

Copyright notice

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).