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Ruling

Subject: capital gains tax

Questions and answers:

1. Are you liable to pay capital gains tax on the transfer of ownership of property A from your spouse's name solely into your name under consent orders through the Family Court?

No.

2. Will the marriage break down roll over apply to your half share transfer in property B to your spouse under Family Court consent orders?

Yes.

This ruling applies for the following period:

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

The scheme commenced on:

1 July 2011

Relevant facts

You and your spouse have gone through a marriage break down.

You have a number of houses in total between you and these will be divided up between the two of you.

You will lodge consent orders with the family court setting out the details of the transfer of each property.

The consent orders will be made under the Family Law Act 1975.

The first property is your main residence and will not attract CGT.

Your spouse has a house solely in their name property A which will be transferred to you.

You and your spouse have a property in joint names property B which will be transferred solely into your spouse's name.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 126-5

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 118-110

Reasons for decision  

CGT is the tax you pay on certain gains you make.  You make a capital gain or a capital loss as a result of a CGT event happening.

The most common event (CGT event A1) happens if you dispose of a CGT asset to someone else.  The time of the event is when you enter into the contract for the disposal or if there is no contract - when a change of ownership occurs.

Marriage breakdown

Generally, CGT applies to all changes of ownership of assets on or after 20 September 1985.  However, if an asset is transferred to you as a result of a marriage breakdown, there is automatic roll-over in certain cases.

The spouse to whom the asset is transferred makes the capital gain or capital loss when they eventually dispose of the asset.

A main residence exemption is only available when you have occupied a dwelling as your main residence throughout your entire ownership period (section 118-110 of the Income Tax Assessment Act 1997 (ITAA 1997)).

In order to receive this automatic roll-over relief, the transfer must occur as a result of:

1. a court order under the Family Law Act 1975 or a corresponding foreign law; or

2. a maintenance agreement approved by a court under section 87 of that Act or a corresponding agreement approved by a court under a corresponding foreign law; or

3. a court order under a State law, Territory law or foreign law relating to de facto marriage breakdowns; or

4. something done under:

i) a financial agreement made under Part VIIIA of the Family Law Act 1975 that is binding because of section 90G of that Act; or

ii) a corresponding written agreement that is binding because of a corresponding foreign law; or

5. something done under:

i) an award made in an arbitration referred to in section 13H of the Family Law Act 1975; or

ii) a corresponding award made in an arbitration under a corresponding State law, Territory law or foreign law; or

6. something done under a written agreement:

i) that is binding because of a State law, Territory law or foreign law relating to de facto marriage breakdowns; and

ii) that, because of such a law, prevents a court making an order about matters to which the agreement applies, or that is inconsistent with the terms of the agreement in relation to those matters, unless the agreement is varied or set aside.

7. a court order under the Family Law Act 1975 or a corresponding foreign law; or

8. a maintenance agreement approved by a court under section 87 of that Act or a corresponding agreement approved by a court under a corresponding foreign law; or

9. a court order under a State law, Territory law or foreign law relating to de facto marriage breakdowns; or

10. something done under:

i) a financial agreement made under Part VIIIA of the Family Law Act 1975 that is binding because of section 90G of that Act; or

ii) a corresponding written agreement that is binding because of a corresponding foreign law; or

11. something done under:

i) an award made in an arbitration referred to in section 13H of the Family Law Act 1975; or

ii) a corresponding award made in an arbitration under a corresponding State law, Territory law or foreign law; or

12. something done under a written agreement:

i) that is binding because of a State law, Territory law or foreign law relating to de facto marriage breakdowns; and

ii) that, because of such a law, prevents a court making an order about matters to which the agreement applies, or that is inconsistent with the terms of the agreement in relation to those matters, unless the agreement is varied or set aside.

.

If these requirements are satisfied there is no need for any election to be made, nor can parties to a marriage breakdown agree not to apply the provisions (Taxation Determination TD 1999/60).

Section 126-5 of the ITAA 1997 specifies that roll over relief can only occur if the asset is transferred to the other spouse.

You will not be liable for capital gains tax on property A as it is being transferred to you from your spouse and if any capital gains tax applies then this will be their responsibility.

For capital gains purposes you are taken to have acquired property A at the time it is transferred from your spouse into your name.

Your half share transfer in property B to your spouse will trigger CGT event A1 and the roll over provisions will apply to disregard this capital gain.

Additional information:

Where a CGT event happens to a property acquired as a result of marriage breakdown, and the marriage breakdown rollover applied to the transferring spouse. The transferee may be entitled to a main residence exemption, however for main residence purposes their ownership interest begins when their former partner's ownership interest commenced, and they are taken to have used the property in the same way their former partner used it. For example:

Person X (the transferor spouse) is the 100% owner of a dwelling that they use only as a rental property before transferring it to Person Y (the transferee spouse). Person Y uses the dwelling only as a main residence.

Person Y will be eligible for only a partial main residence exemption having regard to how both Person X and Person Y used the dwelling.