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Edited version of private advice
Authorisation Number: 1052078303343
Date of advice: 21 March 2023
Ruling
Subject: CGT - marriage breakdown rollover
Question 1
Will the marriage breakdown rollover provisions under Subdivision 126-A of the Income Tax Assessment Act 1997 apply to a portion of your ownership interest in the property transferred by you to your ex-spouse?
Answer
Yes.
You transferred a portion of your ownership interest in the property to your ex-spouse in compliance with a Court Order made under the Family Law Act 1975.
Therefore, as the conditions for the marriage breakdown rollover under section 126-5 of the ITAA 1997 have been met, in accordance with the principles contained in Taxation Determination 1999/60 the rollover will automatically apply.
As a result, you can disregard the capital gain or capital loss made from the transfer of a portion of your ownership interest in the property to your ex-spouse.
Question 2
Will the marriage breakdown rollover provisions under Subdivision 126-A of the Income Tax Assessment Act 1997 apply to a portion of your ownership interest in the property transferred by you to an unrelated 3rd party?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 20XX.
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
You and your ex-spouse purchased a property.
You are the Respondent, and your ex-spouse is the Applicant.
In a Court Order you and your ex-spouse were ordered by the Family Court of Australia to do the following:
- That within 30 days from the date of these orders, the Respondent do all such acts and things and sign all necessary documents to transfer their interest in the property ("the property") as to a XX share to the Applicant and a XX share to the Second Respondent and the Third Respondent jointly.
- That the Applicant contemporaneously and in exchange for the transfer referred to in order 1:
- Pay the respondent the sum of money; and
- Assume all liability for and indemnify the Respondent against all outgoings in respect of the property (jointly and severally with the Second Respondent and Third Respondent).
- That the Second Respondent and Third Respondent contemporaneously and in exchange for the transfer referred to in order 1:
- Pay the Respondent the total sum of $XXX,000; and
- Assume all liability for and indemnify the Respondent against all outgoings in respect of the property (jointly and severally with the Applicant).
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 126-5
Income Tax Assessment Act 1997 section 126-15
Income Tax Assessment Act 1997 section 126-25
Reasons for decision
Capital Gains Tax
Under section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997), Capital Gains Tax (CGT) is the tax that you pay on certain gains you make.
You may make a capital gain as a result of a CGT event happening to an asset in which you have an ownership interest.
The most common CGT event is CGT event A1. Section 104-10 of the ITAA 1997 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.
CGT event A1 occurred when you transferred a portion of your ownership interest in the property to the Second and Third Respondent listed in the Court Order.
Marriage breakdown rollover
In certain situations, the capital gain or capital loss made as a result of a CGT event can be disregarded or rolled over.
Under section 126-5 of the ITAA 1997, where you transfer an asset to your spouse or ex-spouse as a result of a marriage breakdown, there is an automatic rollover in certain cases. The rollover allows the transferor spouse to disregard any capital gain or capital loss that would be realised.
The rollover applies if your marriage or relationship ended on or after 20 September 1985, and:
- you transfer an asset or a share of an asset to your spouse
- you receive an asset or a share of an asset from your spouse, or
- a company or trustee of a trust transfers an asset to you or your spouse.
For the rollover to apply, the CGT event must have happened because of:
- an order of a court or a court order made by consent under the Family Law Act 1975, or a similar law of a foreign country, or
- a court order under a state, territory or foreign law relating to breakdown of relationship between spouses.
Court Order
An order made by consent under the FLA 1975 is a 'court order' in terms of paragraph 126-5(1)(a) of the ITAA 1997 as per Taxation Determination TD 1999/47 Income tax: capital gains: is there roll-over under section 126-5 or 126-15 of the Income Tax Assessment Act 1997 if a CGT event happens because of a court order under the Family Law Act 1975 made by consent?
You have a Court Order issued by the Federal Circuit and Family Court of Australia.
Asset not transferred to spouse
In Ellison v Sandini Pty Ltd [2018] FCAFC 44 (Sandini) the Full Court of the Federal Court found that roll-over relief cannot apply where CGT assets are transferred from a company, trust or spouse to a discretionary trust rather than a spouse or former spouse.
The case concerned the transfer of shares in a mining company owned by a trust controlled by the husband to the corporate trustee of a trust controlled by the wife.
The change in beneficial ownership occurred when the husband's company executed the share transfer form or on registration of the corporate trustee of the wife's trust as the new shareholder.
The wife was not a party to the CGT event; therefore, no roll-over relief was available, and CGT was payable on the transfer.
Application to your circumstances
In your case you did not transfer the property to your spouse or ex-spouse, rather under the Court Order you transferred the property to a third party in exchange for a sum of money.
Although the property was transferred under a Court Order the property was not transferred
- to your spouse
- from your spouse, or
- from a company or trustee of a trust transfers an asset to you or your spouse.
As advised in Sandini if the asset is not transferred to a spouse or ex-spouse the roll-over provisions will not be available.
As the property was not transferred from you to your spouse or ex-spouse the roll-over provisions under section 126-5 of the ITAA 1997 do not apply to the CGT event, therefore CGT is payable by you on the transfer of the property to the 3rd party. You may be eligible for the 50% CGT discount or main residence exemption.
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