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Edited version of private advice
Authorisation Number: 1012665250206
Ruling
Subject: Capital gains tax
Questions and answers
1. Does CGT event A1 occur on transfer of the property to a shareholder?
Yes.
2. Is any capital gain or loss ignored because of the marriage breakdown roll over provisions?
Yes.
This ruling applies for the following periods:
Year ending 30 June 2015
The scheme commenced on:
1 July 2014
Relevant facts and circumstances
You intend to transfer a property to a shareholder.
The shareholder will then transfer the property to their spouse.
Both transfers will be made pursuant to a court order relating to the breakdown in relationship between spouses.
Relevant legislative provisions:
Income Tax Assessment Act 1936 Section 44.
Income Tax Assessment Act 1997 Section 102-20.
Income Tax Assessment Act 1997 Section 104-10.
Income Tax Assessment Act 1997 Division 126.
Reasons for decision
Capital gains tax
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer makes a capital gain or loss as a result of a capital gains tax (CGT) event happening to a CGT asset. CGT assets include real estate acquired on or after 20 September 1985.
The transfer of ownership in a property from a company to an individual results in a CGT event occurring. This is CGT event A1.
Marriage breakdown rollover is available if the conditions set out in Subdivision 126-A of the ITAA 1997 are satisfied. This rollover is an automatic rollover and will apply whether or not a taxpayer chooses for it to apply (Taxation Determination TD 1999/60 Income tax: capital gains: if the requirements of section 126-5 or 126-15 of the Income Tax Assessment Act 1997 are satisfied, is the marriage breakdown roll-over provided by the section automatic?).
Section 126-15 of the ITAA 1997 deals with a CGT event involving a company or a trustee, and a spouse or former spouse.
Subsection 126-15 of the ITAA 1997 provides that the roll-over consequences outlined in section 126-6 apply if the trigger event involves a company or a trustee (referred to as "the transferor") and a spouse or former spouse ("the transferee") of another individual because of:
a) a court order under the Family Law Act 1975 (FLA) or under a state law, territory law or foreign law relating to breakdowns of relationships between spouses
b) a maintenance agreement approved by a court under FLA section 87 or a corresponding agreement approved by a court under a corresponding foreign law
c) before the 2009/10 income year, a court order under a state law, territory law or foreign law relating to de facto marriage breakdowns
d) something done under a binding financial agreement made under FLA Pt VIIIA or a corresponding foreign law
e) something done under an award made in an arbitration under FLA section 13H or a corresponding state law, territory law or foreign law, or
f) something done under a written agreement that is binding because of a state, territory or foreign law relating to breakdowns of relationships between spouses and that 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.
In this situation, the property is being transferred to a spouse as a result of a court order under the FLA in relation to a marriage breakdown.
As such the conditions for rollover relief under subdivision 126-A of the ITAA 1997 are met.
Further issues for you to consider
Where an order is made under section 79 of the FLA and that order requires a private company, or a party to the matrimonial proceedings to cause the private company, to pay money or transfer property to a party to the matrimonial proceedings who is a shareholder of the private company, the payment of money or transfer of property in satisfaction of that order is an ordinary dividend paid out of the private company profits and is all assessable income of the shareholder under section 44 of the Income Tax Assessment Act 1936. For a complete explanation see Draft Taxation Ruling 2013/D6 Income tax: matrimonial property proceedings and payments of money or transfers of property by a private company to a shareholder (or their associate).
Subsection 126-15(3) and subsection 126-15(4) will operate to alter the cost base and reduced cost base of the shares owned by the shareholder receiving the property.