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Ruling

Subject: Capital gains tax - marriage breakdown and disposal

Question:

Is any capital gain or capital loss made on the disposal of your investment property disregarded? 

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.

Prior to 20 September 1985, you and your former spouse jointly purchased a property (the property) which you established as your main residence.

More than ten years later you and your children moved out of the property.

Three months later you moved back into the property.

You and your former spouse separated the following year.

You moved out of the property.

Your former spouse continued resided at the property with your young child.

Approximately two years later a court order was issued by the Family Court. Under these orders your former spouse had to transfer their interest in the property to you.

Your former spouse moved out of the property to another house.

Two years later you and your new partner moved back into the property and established it as your main residence.

The following year you were advised that the Family Law Court Order transferring your former spouse's interest in the property had been executed.

Later your name was registered as the sole owner on the title.

You married your new partner.

The following year you and your partner moved out and your child, child A continued to reside at the property.

Child A did not pay you any rent to reside at the property.

Approximately X years ago, you signed a contract with a real estate agent to list the property as a rental property, from a specified date, as child A had advised you that they were moving out.

Two months later the tenant signed a rental contract and this tenant remained in the property until its disposal.

Early this year you signed the contract for the disposal of the property.

You have provided a copy of documentation to support your application and these documents are to be read with and forms part of your application for the purpose of this ruling.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 104-10.

Income Tax Assessment Act 1997 Section 126-5.

Reasons for decision

The most common capital gains tax (CGT) event, CGT event A1 occurs when you dispose of a CGT asset and the time of the event is when you enter into the contract for its disposal or if there is no contract when change of ownership occurs.

CGT event A1 occurred when you disposed of the property.

Joint tenants

For CGT purposes, individuals who own an asset as joint tenants are each treated as if they own an equal interest in the asset.

In your case, you owned two separate interests in the property. 

You acquired a 50% interest in the property prior to 20 September 1985, when you purchased it with your former spouse. 

More than 15 years ago you acquired your former spouse's interest in the property under a Family Law Court Order.

Marriage breakdown

Generally, CGT applies to all changes of ownership of assets on or after 20 September 1985. However, if your spouse transfers an asset to you as a result of the breakdown or your marriage or de facto marriage, there is an automatic rollover in certain cases. You cannot choose whether or not it applies.

This rollover ensures that the transferor spouse disregards a capital gain or capital loss that would otherwise arise. In effect, the one who receives the asset (the transferee spouse) will make the capital gain or capital loss when they dispose of the asset. If you are the transferee spouse, the cost base of the asset is transferred to you.

Conditions for the marriage breakdown rollover

For the rollover to apply, the CGT event must have happened because of:

· an order of a court or court order made by consent under the Family Law Act 1975 or a similar law of a foreign country, or

· a court order under a state, territory or foreign law relating to de facto marriage breakdowns.

If a CGT asset, including a share of a jointly owned asset, was transferred to you because of the breakdown of your marriage and it was acquired by the transferor before 20 September 1985, you are also taken to have acquired the asset before that date. You disregard any capital gain or capital loss you make when you later dispose of the asset.

In your case, you are taken to have acquired both your interests in the property prior to 20 September 1985, as you acquired your first interest in the property prior to this date when you jointly acquired it with your former spouse. The second interest you acquired was from your former spouse (transferor) under a Family Law Court Oorder, you are taken to have acquired this interest prior to 20 September 1985.

Therefore, you disregard any capital gain or capital loss made on its disposal.