Edited version of private advice

Authorisation Number: 1052312892889

Date of advice: 8 October 2024

Ruling

Subject: Capital gains roll-over

Question 1

Will the transfer of ownership in the property to the Trust from you following the Court Orders dated DD MM YYYY be subject to a CGT roll-over event as per section 126-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

No

Question 2

Will the lifetime interest lease in relation to the property establish an ownership interest for the purpose of section 118-130 of the ITAA 1997?

Answer 2

Yes

This ruling applies for the following period:

30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You and your spouse have separated and working through divorce proceedings through a judicial process. Orders were made on DD MM YYYY that required you to pay your spouse $XX and your spouse to transfer the property to yourself.

You are intending on transferring the property to a trust (the Trust). The Trust will provide a lifetime interest lease to yourself to occupy the property. You will pay the outgoings and maintain the property.

The Trustee for the Trust is a corporate trustee; Company A of which you are the sole Director. There has been no beneficial change in ownership of the property.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 118-130

Income Tax Assessment Act 1997 section 126-5

Income Tax Assessment Act 1997 section 995-1

Does IVA apply to this private ruling?

Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement.

If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidance rule for income tax'.

Reasons for decision

Question 1

Will the transfer of ownership in the property to the Trust from you following the Court Orders dated DD MM YYYY be subject to a CGT roll-over event as per section 126-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

No

Detailed reasoning

Section 126-5 of the ITAA 1997 provides:

(1)          There is a roll - over if a CGT event (the trigger event) happens involving an individual (the transferor) and his or her spouse (the transferee), or a former spouse (also the transferee), because of:

(a)           a court order under the Family Law Act 1975 or under a State law, Territory law or foreign law relating to breakdowns of relationships between spouses

(2)          Only these CGT events are relevant:

(a)           CGT events A1 and B1 (a disposal case)

Section 995-1 of the ITAA1997 provides the definitions for the terms used in the ITAA 1997. A CGT event is defined as any of the CGT events described in Division 104.

Section 104-10 of the ITAA 1997 provides:

(1)          CGT event A1 happens if you dispose of a CGT asset.

(2)          You dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner.

CGT event A1 occurs when you dispose of a CGT asset and a disposal occurs when there has been a change of ownership. You previously owned the property with your spouse and a change of ownership occurred when your spouse had to transfer their interest in the property to you because of the Court Order dated DD MM YYYY. Because of the change of ownership, a disposal has occurred as at this date and CGT event A1 will happen in relation to this disposal.

Section 126-5 of the ITAA 1997 provides a roll-over if a CGT event happens to an individual and their spouse. Subsection 126-5(2)(a) limits the CGT events that the roll-over can apply to and indicates A1 as a relevant event. CGT event A1 occurred on DD MM YYYY to you and your former spouse. You are both individuals that have received a Court Order relating to the breakdown of your marital relationship. The transfer of the property from your spouse to yourself would be subject to the roll-over as described in subsection 126-5(1)(a) of the ITAA 1997.

Section 126-5 of the ITAA 1997 specifically excludes references to corporate entities and trusts in applying the roll-over provisions. Any transfer from yourself to the Trust would not be subject to a roll-over under section 126-5 of the ITAA and the ordinary CGT provisions would apply to this transfer.

Question 2

Will the lifetime interest lease in relation to the property establish an ownership interest for the purpose of section 118-130 of the ITAA 1997?

Answer 2

Yes

Detailed reasoning

Section 118-130 of the ITAA 1997 provides:

(1)          You have an ownership interest in land or a dwelling if:

(a)           for land--you have a legal or equitable interest in it or a right to occupy it

You are intending to sign a Lifetime Interest Lease with Company A as the corporate trustee of the Trust that has ownership of the property. You will have a life tenancy because of this agreement. The Commissioner notes that there has been no beneficial change in ownership of the property because of this arrangement.

The arrangement provides a legal right to occupy the property for your life until your death or the corporate trustee electing to sell the premises that would otherwise be at your direction. This legal right would amount to an ownership interest for the purposes of section 118-130 of the ITAA 1997.

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