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Edited version of private advice
Authorisation Number: 1051525743632
Date of advice: 1 June 2019
Ruling
Subject: CGT - rollover - marriage breakdown
Question
Will the marriage breakdown rollover provisions under Subdivision 126-A of the Income Tax Assessment Act 1997 (ITAA 1997) apply to disregard the capital gain on the disposal of the property?
Answer
Yes
This ruling applies for the following periods:
Year ending 30 June 20XX
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You and your ex-spouse have been separated for XX years.
You and your ex-spouse jointly own an apartment, in State A (the property), which is your spouses' main residence.
You and your ex-spouse have filed for divorce and as part of this process, you will be entering into a Binding Financial Agreement made under Part VIIIA of the Family Law Act 1975.
The property will be transferred to your ex-spouse as part of the Binding Financial Agreement.
Relevant legislative provisions
Income Tax Assessment 1997 section 102-20
Income Tax Assessment 1997 section 108-5
Income Tax Assessment 1997 section 104-10
Income Tax Assessment 1997 subdivision 126-A
Income Tax Assessment 1997 subsection 126-5(1)
Reasons for decision
Capital gains tax provisions
Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) states that a capital gain or capital loss is made only if a capital gains tax (CGT) event happens to a CGT asset. The property is a CGT asset (section 108-5 of the ITAA 1997).
Under section 104-10 of the ITAA 1997, CGT event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity. The transfer of the property to your ex-spouse will therefore be a CGT event A1.
Marriage breakdowns
CGT generally applies to all changes of ownership of assets on or after 20 September 1985. However, subdivision 126-A of the ITAA 1997 outlines the circumstances where a capital gain may be disregarded following a marriage breakdown.
If certain conditions are met there is an automatic roll-over of the capital gain for the transferring spouse if a CGT event happens as a result of a marriage breakdown.
Subsection 126-5(1) provides that there is a roll-over if a CGT event happens involving an individual and his or her spouse or former spouse because of:
(a) a court order under the Family Law Act 1975 or under a State law, Territory law or foreign law relating to breakdowns of relationships between spouses; or
(b) a maintenance agreement approved by a court under section 87 of the Family Law Act 1975 or a corresponding agreement approved by a court under a corresponding foreign law; or
(c) (Repealed by No 144 of 2008)
(d) something done under:
i. a financial agreement made under Part VIIIA of the Family Law Act 1975 that is binding because of section 90G of that Act; or
ii. a corresponding written agreement that is binding because of a corresponding foreign law; or
(da) something done under:
i. a Part VIIIAB financial agreement (within the meaning of the Family Law Act 1975) that is binding because of section 90UJ of that Act; or
ii. a corresponding written agreement that is binding because of a corresponding foreign law; or
(e) something done under:
i. an award made in an arbitration referred to in section 13H of the Family Law Act 1975; or
ii. a corresponding award made in an arbitration under a corresponding State law, Territory law or foreign law; or
(f) something done under a written agreement:
i. that is binding because of a State law, Territory law or foreign law relating to breakdowns of relationships between spouses; and
ii. that, because of such a law, 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.
iii. agreement in relation to those matters, unless the agreement is varied or set aside.
The Subdivision 126-A roll-over only applies where the transferee is either a spouse or former spouse. A transfer to, or the creation of an asset in, a third party under a relevant order, agreement or award will not attract the roll-over relief despite the CGT event being a consequence of the breakdown of a relationship between spouses.
In your case, there will be a CGT event when you transfer your interest in the property to your ex-spouse. The transfer of your interest in the property will happen because of the binding financial agreement made under Part VIIIA of the Family Law Act 1975. As such the marriage breakdown rollover provisions under section 126-5 of the ITAA 1997 will apply, allowing you to disregard any capital gain or capital loss made from the transfer of your interest in the property to your ex-spouse.