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Edited version of private ruling
Authorisation Number: 1011494865407
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Ruling
Subject: Capital gains tax - Disposal of property - marriage breakdown
Question
Is the capital gain or capital loss made on the sale of the property disregarded?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2011
Year ended 30 June 2012
The scheme commenced on
1 July 2010
Relevant facts
A number of years ago you purchased a property (the property) for your estranged spouse to reside until your divorce and any property settlement is finalised through the Family Court.
Your divorce has been granted recently.
Your estranged spouse has not contributed to any of the expenses relating to the property or mortgage.
From legal advice received it appears that your estranged spouse will no longer be able to reside in the property rent free.
The Family Law Courts may deem that this property is to be sold with the proceeds of sale being paid to your estranged spouse.
You and your estranged spouse operated a joint business.
You are now the sole owner of the business.
You and your estranged spouse's solicitors are currently dealing with the outstanding financial matters and property settlement.
You and your spouse are required to attend the Family Court to finalise your property settlement.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 118-110
Income Tax Assessment Act 1997 Section 118-170
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 104-10
Income Tax Assessment Act 1997 Section 115-5
Income Tax Assessment Act 1997 Section 126-5
Reasons for decision
Main residence
Generally, you ignore a capital gain or capital loss from a capital gains tax (CGT) event that happens to your ownership interest in a dwelling that is your main residence.
To get the full exemption from CGT:
- the dwelling must have been your home for the whole period you owned it
- you must not have used the dwelling to produce assessable income, and
- any land on which the dwelling is situated must be two hectares or less.
If during a period a dwelling is your main residence and another dwelling is the main residence of your spouse you can choose one of the dwellings as your main residences or nominate the different dwellings as your main residences for the period.
However, this does not apply to a spouse living permanently separately and apart from you.
You specifically purchased the property for your estranged spouse to reside in whilst awaiting your divorce to be finalised. As you have never resided in the property and as you and your estranged spouse are living permanently separately apart, you are not eligible for a full or partial main residence exemption upon its sale.
Marriage breakdown
As a general rule, CGT applies to all changes of ownership of assets on or after 20 September 1985. However, if you transfer an asset to your spouse as a result of the breakdown of your marriage there is an automatic rollover in certain cases. You cannot choose whether or not this applies.
In your case, as the property is not being transferred to your estranged spouse under a court order the marriage breakdown rollover provisions do not apply.
Upon sale of the property CGT event A1 will occur as a change of ownership will occur from you to another entity. The time of the event is when you enter into the contract or if there is no contract - when the change of ownership occurs.
You can use the discount method to calculate your capital gain as you meet all the necessary criterion.
For more information on how to calculate your capital gain or capital loss please see the enclosed information which has been taken from the Guide to capital gains tax 2009-10 (NAT 4151-6.2010).