Edited version of private advice

Authorisation Number: 1052161761735

Date of advice: 30 August 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 your interest in the property transferred to you by your ex-spouse?

Answer

Yes.

Question 2

Is the first element of the property's cost base the ex-spouse's cost base of the property at the time the ex-spouse transferred the asset to you?

Answer

Yes.

This ruling applies for the following period:

Year ended XX XXXX 20XX

The scheme commenced on:

XX XXXX 20XX

Relevant facts and circumstances

Your ex-spouse purchased a property. Your ex-spouse had a 100% ownership interest in the property.

You divorced your ex-spouse.

You obtained a valuation report that provided the market value of the property was $X

You provided a copy of a Court Order between you and your ex-spouse.

The Court Order ordered your ex-spouse to transfer his interest in the property to you and for you to refinance the mortgage in your own name.

Following the finalisation of the court order, you discharged the registered mortgage and refinanced it in your own name.

In 2021 you made the decision to sell the property.

From XXXX to when you disposed of the property, the property was rented out.

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 126-25

Family Law Act 1975

Reasons for decision

Question 1

Will the marriage breakdown rollover provisions under subdivision 126-A of the Income Tax Assessment Act 1997 apply to your interest in the property transferred to you by your ex-spouse?

Summary

Yes.

Detailed reasoning

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 a dwelling to someone.

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, if an asset is transferred to you as a result of a marriage breakdown, there is an automatic rollover in certain cases. The rollover allows the transferee spouse to defer the capital gain to when they later dispose of it.

The rollover applies in relation to a disposal of an asset to a spouse if the transfer happens because of an order or court order made under the Family Law Act 1975 (FLA 1975).

Application to your circumstances

CGT event A1 occurred when your former spouse transferred his 100% ownership interest in the property to you. However, you have a Court Order that ordered the legal title of the property to be transferred to you. Your ex-spouse transferred the property to you under the Court Order. Therefore, there is an automatic marriage breakdown rollover which applies to your former spouse's ownership interest in the property and the CGT event is disregarded. CGT will apply when you later dispose of the asset.

Question 2

Is the first element of the property's cost base the ex-spouse's cost base of the property at the time the ex-spouse transferred the asset to you?

Summary

Yes.

Detailed reasoning

In working out your capital gain or loss, you determine the cost base of the CGT asset involved in the CGT event.

Section 110-25 of the ITAA 1997 sets out the elements that form part of the cost base and provides there are five elements of the cost base. The first element includes the money paid or are required to pay in respect of acquiring the CGT asset and the market value of any other property you gave or are required to give in respect of acquiring it (worked out as at the time of the acquisition).

However, section 126-5(5)(a) of the ITAA 1997 provides that the first element of the assets cost base for a person who acquires a property as result of the marriage rollover provision is the cost base of the transferor at the time of that transfer. That is, the cost base of the property is your ex-spouse's cost base at the time they transferred the property to you.

Consequently, the first element of the cost base of the property will be your former spouse's cost base at the time you acquired the property.

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