Edited version of private advice

Authorisation Number: 1052173661960

Date of advice: 4 October 2023

Ruling

Subject: CGT - A1 disposal

Question

Are you liable to declare capital gains tax (CGT) in relation to your ownership interest in the sale of the investment property in your income tax return?

Answer

Yes.

This ruling applies for the following period:

Year ended XX June 20XX

The scheme commenced on:

XX July 20XX

Relevant facts and circumstances

You and your ex-spouse purchased a matrimonial property.

You and your ex-spouse each had a 50% interest in the matrimonial property as tenants in common.

The matrimonial property was your principal place of residence.

You and your ex-spouse purchased an investment property.

You and your ex-spouse each had a 50% interest in the investment property as tenants in common.

Your marriage broke down.

You provided a copy of the Court Order between you and your ex-spouse.

Following the finalisation of the Court Order, the matrimonial property was transferred to your ex-spouse and the investment property was sold.

Relevant legislative provisions

Income Tax Assessment Act 1997 subdivision 126-A

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Family Law Act 1975

Reasons for decision

Question

Are you liable to declare capital gains tax (CGT) in relation to your interest in the sale of the investment property in your income tax return?

Summary

Yes. You are required to declare the capital gain or loss in your income tax return according to your ownership interest.

As you hold a 50% interest in the investment property, you are only liable for 50% of the capital gain or loss.

Furthermore, as you owned the investment property for more than 12 months, you can also apply the 50% CGT discount.

Detailed reasoning

Under section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997), CGT is the tax that you pay on certain gains you make. You may make a capital gain as a result of a CGT event happening to an asset in which you have an ownership interest.

The most common CGT event is CGT event A1. Section 104-10 of the ITAA 1997 explains that this event occurs whenever there is a change of ownership for a CGT asset, for example, when you dispose of a dwelling to someone.

In certain situations, the capital gain or capital loss made as a result of a CGT event can be disregarded or rolled over. Under section 126-5 of the ITAA 1997, if an asset is transferred to you as a result of a marriage breakdown, there is an automatic rollover in certain cases. The rollover allows the transferee spouse to defer the capital gain to when they later dispose of it.

The rollover applies in relation to a disposal of an asset to a spouse if the transfer happens because of an order or court order made under the Family Law Act 1975.

Application to your circumstances

Here, the court ordered the investment property to be sold.

The marriage breakdown rollover provision in section 126-5 of the ITAA 1997 does not apply as the investment property was not transferred between parties but was sold.

The normal concepts in CGT apply and the disposal of the property is considered an A1 CGT event where you must declare the capital gain or loss in your tax return apportioned according to your ownership interest in the investment property.