Edited version of your written advice

Authorisation Number: 1013135295021

Date of advice: 5 December 2016

Ruling

Subject: Capital gains tax - marriage breakdown roll-over - acquisition - disposal

Question 1:

Where a capital gains tax asset acquired before 20 September 1985 is transferred to you because of a court order under the Family Law Act 1975 (FLA 1975), are you taken to have acquired the asset before that date under subsection 126-5(6) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer:

Yes.

Question 2:

Will you be able to disregard any capital gain made on the disposal of the properties?

Answer:

Yes.

This ruling applies for the following periods

Income year ending 30 June 2017

Income year ending 30 June 2018

Income year ending 30 June 2019; and

Income year ending 30 June 2020

The scheme commences on

1 July 2016

Relevant facts and circumstances

You and your spouse jointly purchased a number of properties (the Properties) prior to 20 September 1985.

You and your spouse separated with the dissolution of your marriage occurring after 20 September 1985.

Shortly after the dissolution of your marriage, consent orders were filed on your behalf for the transfer of your ex-spouse's ownership interests in each of the Properties to you.

The court ordered that under the terms of settlement, your ex-spouse's ownership interests in each of the Properties would be transferred into your name pursuant to the FLA 1975.

The titles of the Properties were transferred into your name with the titles being issued in the year after the dissolution of your marriage occurred.

You intend disposing of the Properties to your children in the future.

Relevant legislative provisions

Family Law Act 1975

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 Part 3-3

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Division 109

Income Tax Assessment Act 1997 Section 126-5

Income Tax Assessment Act 1997 Subsection 126-5(6)

Reasons for decision

Summary

The 50% ownership interests in the Properties that were transferred into your name by your ex-spouse because of the court order will retain their pre-CGT status. Therefore, any capital gain or capital loss made on the disposal of those ownership interests, and your original ownership interests in each of the Properties can be disregarded.

Detailed reasoning

Marriage or relationship breakdown rollover

As a general rule, capital gains tax (CGT) applies to all changes of ownership of assets on or after 20 September 1985. However, if you transfer an asset to your spouse as a result of the breakdown of your marriage or relationship, there is automatic rollover in certain cases.

This rollover ensures 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 subsequently dispose of the asset. If you are the transferee spouse, the cost base of the asset is transferred to you.

Assets acquired by the transferor before 20 September 1985

Division 109 of the ITAA 1997 sets out the ways in which you can acquire a CGT asset and the time of the acquisition. Generally, you acquire a CGT asset when you become its owner. You can also acquire a CGT asset as a result of a CGT event happening. The table at subsection 109-5(2) of the ITAA 1997 sets out the specific rules for the circumstances in which, and the time at which, you acquire a CGT asset as a result of a CGT event happening.

CGT event A1 occurs when an entity disposes of a CGT asset to you. You acquire the asset when the disposal contract is entered into or, if none, when the entity stops being the asset's owner.

If a CGT asset, including a share of a jointly owned asset, was transferred to you because of the breakdown of your marriage or relationship 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.

However, if you make a major capital improvement to that asset after 20 September 1985, you may be subject to CGT when you dispose of it or another CGT event happens to that asset.

Application to your situation

For capital gains tax purposes, you are considered to own two separate assets in each of the Properties. The first asset is your original 50% ownership interest in each of the Properties that you acquired when you and your then spouse jointly purchased the Properties prior to 20 September 1985. As you acquired your original ownership interests in the Properties prior to 20 September 1985, they are pre-CGT, and any capital gain made on the disposal of those ownership interests can be disregarded.

The second asset is the 50% ownership interest in each of the Properties that your ex-spouse transferred to you as a result of a court order. Based on the information and documentation provided, it is viewed that the transfer of your ex-spouse's ownership interests in each of the Properties will qualify for the marriage breakdown roll-over.

As your ex-spouse acquired their ownership interests in each of the Properties prior to 20 September 1985, you are also taken to have acquired those interests prior to 20 September 1985. Therefore, the 50% ownership interests in the Properties transferred to you from your ex-spouse will also be viewed as being pre-CGT assets. Accordingly, any capital gain or capital loss you make upon the sale of the interests that you acquired from your ex-spouse will also be disregarded.

Note: If any buildings or structures have been constructed on the Properties after 20 September 1985, they will be considered to be separate assets from the Properties, and will be subject to CGT.