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Ruling
Subject: Capital gains tax - marriage breakdown - disposal of asset
Question
Will you be liable for capital gains tax (CGT) if your ex-spouse retains all of the proceeds from the sale of the property as part of your divorce settlement?
Answer
Yes
This ruling applies for the following periods:
Year ending 30 June 2012
Year ending 30 June 2013
The scheme commenced on:
1 July 2011
Relevant facts and circumstances
You are an Australian resident for taxation purposes.
You jointly own a property in Country X with your ex-spouse.
The property purchased was your primary residence for some time.
You moved to Australia before 2007 and purchased a property in Australia which became your primary residence.
You and your ex-spouse divorced before 2010.
The property in Country X will be sold in the near future.
It is likely, under the divorce settlement that your ex-spouse will retain all of the proceeds from the sale of the Country X property.
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 118-130
Reasons for decision
Capital gains tax (CGT) is the tax that you pay on certain gains you make. You may make a capital gain as a result of a CGT event, happening to an asset in which you have an ownership interest. The most common CGT event, CGT event A1, occurs when you dispose of your ownership interest in a CGT asset to another entity.
There are exceptions to the general rule about the application of the capital gains provisions. For example, under the marriage breakdown exception, any capital gain or capital loss you make is disregarded where the transfer of an asset is brought about as a result of a Court order issued under the Family Law Act 1975 and the asset is transferred to one of the spouses in compliance with the court order.
In your case, you will dispose of a property. As a part of the divorce settlement, it is likely that your ex-spouse will retain all of the proceeds from the sale. As you will not transfer your interests in the property to your ex-spouse, the marriage breakdown exception does not apply.
When considering the disposal of your interest in a property, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal owner of the property. In absence to the contrary, property is considered to be owned by person(s) registered on the title.
As none of the exceptions to the general rule apply, you will be responsible for any capital gains tax liability on the portion of the property that you own at the time you dispose of it. It is the ownership of the asset when it is disposed of that determines the CGT liabilities, not who will ultimately retain the proceeds of the sale. Therefore, you must include any capital gain made on the disposal of your ownership interest in the property.