Edited version of private advice

Authorisation Number: 1052400294862

Date of advice: 26 May 2025

Ruling

Subject: CGT - legal vs beneficial

Question 1

Did capital gains tax (CGT) event A1 happen to your interests in the Properties due to the Court Order?

Answer 1

Yes.

Question 2

Will the capital gain you made on the disposal of your interests in the Properties be disregarded under section 126-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 2

Yes.

Question 3

Did CGT event A1 happen to you when the Properties were sold?

Answer 3

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

XX July 20XX

Relevant facts and circumstances

You and your spouse owned three properties in Town A;

•                     Property A owned 100% by you

•                     Property B owned as joint tenants with your spouse, and

•                     Property C owned 100% by your spouse.

You also owned a property in City A, which was the family home (Family Home).

In February 20XX, you and your spouse separated, and your spouse moved out of the Family Home.

In June 20XX, your spouse, as director of your jointly owned company, placed the company into voluntary administration. As a result, you were both unemployed.

By September 20XX, the company had been liquidated.

In October 20XX you secured full time employment.

In July 20XX, you filed for divorce which was granted in August 20XX.

In May 20XX you engaged lawyers to draft Consent Orders for an official property settlement.

On 7 December 20XX the court orders were signed (The Order).

The Order stipulated that within 60 days from the date of the order, that your spouse, the respondent, transfer his ownership interest in the Family Home to you, the applicant.

You were to indemnify and discharge your spouse against all payments and liabilities pursuant to the mortgage to the bank and all apportionable rates, and out goings of or with respect to the Family Home of whatever nature and kind.

Your spouse was ordered to do all acts and things necessary to indemnify you and to remove all caveats and writs encumbering the Family Home.

The Order stipulated that within 60 days from the date of the order, you transfer your ownership interest in Property A and Property B (The Properties), to your spouse.

Your spouse was to indemnify you for all apportionable rates, and out goings of or with respect to the Properties of whatever nature and kind.

Your spouse was to refinance the properties into their sole name, and indemnify and discharge you against all payments and liabilities pursuant to the mortgages registered to the bank, and all apportionable rates and outgoings of or with respect to the Properties.

Your spouse was also ordered to do all acts and things necessary to indemnify you and to remove all caveats and writs encumbering Property B.

Your spouse was to retain their interest in Property C.

The Order stipulated that if your spouse was unable to refinance the Properties into their own name in accordance with the Order, then you and your spouse were to list the Properties for sale.

The Order stated:

10. That upon the completion of the sale of the property or properties, the proceeds of the sale (s) are to be applied as follows:

a)            Firstly, to pay all costs, commissions and expenses of the sale;

b)            Secondly, such amount as is necessary to discharge any mortgage secured against the property sold;

c)            Thirdly, such amount as is necessary to discharge any other encumbrance against the property sold;

d)            Fourthly, the balance of the proceeds to be paid to the Respondent.

11. That pending the transfer or sale of Property A, Property B and or/ Property C:

a)            The Respondent shall indemnify the Applicant for any mortgage repayments and outgoings of whatsoever nature and kind.

b)            Neither party encumber the real properties without the consent in writing of the other party.

Your spouse was unable to refinance the Properties into their name and so in accordance with the Order the Properties were sold.

Property A sold in the 20XX year. A capital gain was made on the disposal.

Property B sold in the 20XX year. A capital gain was made on the disposal.

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 108-5

Income Tax Assessment Act 1997 section 108-7

Income Tax Assessment Act 1997 subdivision 104-B

Income Tax Assessment Act 1997 subdivision 126-A

Income Tax Assessment Act 1997 section 126-5

Reasons for decision

Question 1

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss is made only if a capital gains tax (CGT) event happens to a CGT asset.

A property is a CGT asset under section 108-5 of the ITAA 1997.

An interest in a property is also a CGT asset.

Section 108-7 of the ITAA 1997 provides that individuals who own a CGT asset as joint tenants are treated as if they each owned a separate CGT asset constituted by an equal interest in the asset and as if each of them held that interest as a tenant in common.

Under section 104-10 of the ITAA 1997, CGT event A1 happens if you dispose of a CGT asset. Subsection 104-10(2) states that you dispose of a CGT asset if a change of ownership occurs from you to another entity.

The Court Order stipulated that your interests in the Properties were to be transferred to your spouse, upon them obtaining the necessary finance. If your spouse could not obtain the finance, then the Properties were to be sold, associated debts to be repaid, and the balance of the proceeds to be paid to your spouse.

The Court Order is stated in terms that make it clear that from that date you held legal ownership of the Properties on trust for your spouse. That constitutes the disposal of the Properties to this trust.

From this point forward, you did not own the Properties in your own right for CGT purposes.

Question 2

As a general rule, CGT applies to all changes of ownership of assets acquired on or after 20 September 1985.

However, under section 126-5 of the ITAA 1997, if you transfer an asset to your spouse as a result of the breakdown of your marriage or relationship, there is automatic rollover in certain cases. The roll-over allows the transferor spouse to disregard a capital gain or capital loss that would otherwise arise.

Having considered your circumstances and the relevant factors relating to your situation, you meet the conditions for the rollover to apply to the disposal of your interests in the Properties because:

•                     your marriage or relationship ended on or after 20 September 1985 with no likelihood of cohabitation being resumed,

•                     your ownership interest in the Properties were transferred to your spouse,

•                     the CGT event happened because of an order of a court or court order made by consent under the Family Law Act 1975.

As you are the transferor spouse, you disregard any capital gain or loss made when you transferred your interests to your spouse.

You will need to report the rollover in your tax returns.

Question 3

Your ownership interests in the Properties ended when the Court Order was issued, because from that point forward you held them on trust and not in your own right as an individual.

When the Properties were sold, as you were no longer the owner, it is not you disposing of them for CGT purposes and the CGT event did not happen to you.

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