Edited version of private advice

Authorisation Number: 1051530243292

Date of advice: 29 August 2019

Ruling

Subject: Marriage breakdown roll-over

Question 1

Did capital gains tax (CGT) event A1 occur when you transferred the shares to your former spouse?

Answer 1

Yes.

Question 2

Will the roll-over under section 126-5 apply to the transfer of Tyro shares to your former spouse?

Answer 2

No.

This ruling applies for the following period:

Year ending 30 June2018

Year ending 30 June 2019

The scheme commences on:

1 July 2017

Relevant facts and circumstances

You and your spouse separated.

You moved out of the family home you shared and into rented accommodation on shortly after the separation.

You were allocated options to purchase shares in the company you are employed by. The company is a public company but is not a listed company so its shares are not widely held or traded.

The shares acquired were off market shares.

To physically acquire the shares in the company, you were required to exercise an option.

You paid $X! for the acquisition of a number of ordinary shares in the company.

You exercised the option to acquire the shares in a single transaction, at different share prices.

As a direct consequence of the breakdown of the marriage, and as part of the financial settlement between you and your former spouse, you transferred 50% of the shares acquired in the company to your former spouse after you separated for a consideration of $X!.

This was not the market value of the shares at the time of transfer.

The only other assets you owned were joint bank accounts and both you and your former spouse had your own superannuation.

You and your former spouse engaged your own independent solicitors and entered into consent orders which were finalised after the shares had been transferred, to apportion and allocate a part of your super balance to your former spouse.

This was the only asset that still required to be apportioned as you and your former spouse had already made adjustments to your finances in terms of the shares, cash in the bank accounts and division of other property, namely furniture and effects.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 subdivision 126A

Reasons for decision

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 or shares. This is called CGT event A1.

You dispose of a CGT asset if a change in ownership occurs from you to another entity. The time of the event is when the disposal contract is entered into, or if there is no contract, when the actual change of ownership occurs.

Section 126-5 of the Income Tax Assessment Act 1997 outlines that if an asset or an interest in an asset is transferred by a person to their spouse as a result of the breakdown of their marriage or relationship; roll-over applies provided certain conditions are met.

In order for the roll-over 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,
• a court order under a state, territory or foreign law relating to breakdown of relationship between spouses.
• a financial agreement made under Part VIIIA of the Family Law Act 1975,
• an award made in arbitration referred to in section 13H of the Family Law Act 1975, or
• something done under a written agreement that is binding because of a State law, Territory law or foreign law relating to breakdowns of relationships between spouses and 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.

Taxation Determination TD1999/53 Income tax: capital gains: if a CGT asset is transferred by agreement between spouses and a court order later sanctions its transfer, was the transfer of assets made 'because of' the court order in terms of section 126-5 or 126-15 for roll-over to apply? states that a CGT asset transferred between spouses by agreement, before a court order is made under the Family Law Act 1975 or a State, Territory or foreign law relating to de facto marriage breakdowns, is not transferred 'because of' the court order.

So, if a person and their spouse divide assets under a private or informal agreement (not because of a court order, a binding financial agreement, an arbitral award or another agreement or award), the marriage breakdown roll-over does not apply. This is because the court order does not cause the CGT event (transfer) to happen.

If this occurs, the person making the transfer must take any capital gain or capital loss they make on the transfer of the asset into account in working out their net capital gain (or net capital losses carried forward to future years) on their tax return for the income year that the transfer of assets occurs.

In your case, you and your former spouse are separated and there is no reasonable likelihood of reconciliation. CGT event A1 occurred when you transferred the ordinary shares to your former spouse. However, as the transfer of your former spouse's interest in the shares happened by mutual agreement before the Court Orders were finalised, the marriage breakdown relief does not apply.