Edited version of your written advice

Authorisation Number: 1013073706656

Date of advice: 26 August 2016

Ruling

Subject: CGT after marriage breakdown

Question

Are the settlement proceeds received in your court ordered divorce settlement assessable?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 2016

The scheme commences on:

1 July 2015

Relevant facts and circumstances

You had a court ordered divorce settlement.

You received a property.

You received a motor vehicle.

You received a cash payment.

You received a payment transferred from a superannuation fund into your superannuation account.

No payments that you received related to a joint business.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 118-5

Income Tax Assessment Act 1997 Section 118-305

Income Tax Assessment Act 1997 Section 126-1

Income Tax Assessment Act 1997 Section 126-5

Reasons for decision

Assessable income includes ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) and statutory income as defined in section 6-10 of the ITAA 1997.

Whether or not a particular receipt is ordinary income depends on its character in the hands of the recipient. A substantial body of case law exists which identifies likely characteristics of ordinary income. Amounts that are periodic, regular or recurrent and relied upon by the recipient for their regular expenditure are likely to be ordinary income, as are amounts that are the product of any employment of, or services rendered by, the recipient. Further, amounts which compensate for lost income or serve as a substitute for other income are themselves income according to ordinary concepts.

You make a capital gain or capital loss if a capital gains tax (CGT) event happens. The most common event occurs if you dispose of a CGT asset, such as your home. This is called CGT event A1, as established in Section 104-10 of the ITAA 1997.

Section 126-5 of the ITAA 1997 specifies the CGT treatment of assets when an asset is transferred as a result of marriage breakdown. There is a roll-over if a CGT event happens involving an individual and his or her spouse, or former spouse because of a court order under the Family Law Act 1975. Section 126-1 of the ITAA 1997 states that a same-asset roll-over allows a capital gain or loss made from an entity when disposing of a CGT asset to, or creating CGT asset in, another entity to be disregarded.

There are specific assets that are exempt from CGT. These are listed in Subdivision 118-A-General exemptions. A capital gain or capital loss you make from a car is disregarded.

Subsection 118-305(3) of the ITAA 1997 provides that a CGT exemption is available to the spouse of a fund member who receives a payment under an arrangement to split a superannuation interest on marriage breakdown.

Application to your circumstances

The cash payments you received under the Family Court settlement are not assessable income. They are not considered to be ordinary income as they are not a product of employment or services rendered, are not periodic, recurrent and relied upon. The payments are not assessable as statutory income. Therefore the cash payments you received are not assessable.

In your situation with the property transfers, as it was ordered by the court in settlement under the Family Law Act 1975, rollover provisions apply and any capital gains or losses are disregarded for these CGT events.

Any capital gain or capital loss you make from your car is disregarded under the CGT provisions.

The CGT is disregarded for the payment you received that is payable out of the superannuation fund under superannuation split payments.

Therefore, the proceeds you received from your court ordered property settlement, are not assessable income.