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Edited version of your private ruling
Authorisation Number: 1012091233997
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fac sheet has more information.
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Ruling
Subject: Capital gains tax - marriage breakdown and disposal of investment property
Question 1: Do you have two interests in your investment property upon the acquisition of your former partner's interest as the result of a Family Law Court order?
Answer: Yes.
Question 2: Are you liable for all the capital gains tax (CGT) due to the transfer of your former partner's interest in the investment property into your name?
Answer: yes.
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
In 1990s you and your former partner purchased an investment property (the property) as joint tenants.
The property consists of a dwelling on a suburban block.
The property has been used as an investment property since its acquisition.
In 20XX your former partner's interest in the property was transferred to you under a Family Law Court order.
The property is still being used an investment property.
You will dispose of the property this year.
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 115-30.
Income Tax Assessment Act 1997 Section 126-5.
Income Tax Assessment Act 1997 Section 118-178
Income Tax Assessment Act 1997 Section 110-55
Income Tax Assessment Act 1997 Section 110-25
Income Tax Assessment Act 1997 Section 102-10
Income Tax Assessment Act 1997 Section 102-15
Reasons for decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
Reasons for decision
The most common CGT event, CGT event A1, occurs when you dispose of a CGT asset. The time of the event is when you enter into the contract for the disposal or if there is no contract when the change of ownership occurs.
CGT event A1 will occur when you dispose of your investment property.
Calculating Capital Gains and Losses:
You make a capital gain if the capital proceeds from the disposal are more than the assets cost base. You make a capital loss if those capital proceeds are less than the assets reduced cost base.
Current year capital losses are applied against any capital gains made during that income year to determine a net capital gain or net capital loss.
A net capital loss that cannot be applied in an income year can be carried forward to a later income year. A net capital loss can continue to be carried forward indefinitely and used to reduce future capital gains.
Capital losses cannot be used to offset ordinary income or capital gains made in prior income years.
For CGT purposes, you are considered to own two separate interests in the property. The first CGT interest is the 50% interest in the property that you acquired in 1990s when the property was originally purchased by you and your former partner.
The second interest will be the 50% interest in the property that you acquired in 20XX when your former partner's interest was transferred into your name under the Family Law Court order.
Interest acquired as a result of marriage breakdown
Where an asset is transferred to a partner as a result of a marriage breakdown, there is automatic roll-over where the transfer occurs because of a court order. The roll-over allows the transferor partner to disregard a capital gain or capital loss that would otherwise arise. In effect, the one who receives the asset will make the capital gain or capital loss when they dispose of it.
In your case, you will be taken to have acquired this interest in the property on the date it was transferred into your name, for your former partner's cost base. This means that you will be liable for 100% of any capital made between purchase of the property in 1990s and its subsequent sale.
For more information on how to calculate your capital gain or capital loss please see the enclosed information, this information was taken from the Guide to capital gains tax 2010-11 (NAT 4151-6.2010). Further information is also available on our website - www.ato.gov.au.