Edited version of private advice

Authorisation Number: 1052185605490

Date of advice: 8 November 2023

Ruling

Subject: CGT event A1

Question

Are your capital proceeds on the sale of the Property apportioned according to the Consent Orders?

Answer

No.

This private ruling applies for the following period:

Income year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You and your ex-spouse owned a property located at Location A (the Property) as tenants in common.

Your ownership interest in the Property was XX%.

Due to the marriage breakdown, you and your ex-spouse were directed by the Federal Circuit and Family Court of Australia Court Order dated DD MM 20XX to sell the Property.

The Court Order states that on settlement of the sale of the property the parties shall forthwith do all things and sign all documents necessary to divide and distribute the proceeds of sale of the property with XX% of the balance of the proceeds of sale being paid to your ex-spouse and XX% to you.

You provided a spreadsheet relating to the sale of the Property.

The Property was sold for a capital gain.

You received proceeds based on the Court Order from the sale of the Property.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 103-10

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 116-20(1)

Income Tax Assessment Act 1997 Section 116-30

Income Tax Assessment Act 1997 Section 126-5

Reasons for decision

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that you make a capital gain or loss as a result of a CGT event. The most common event is CGT event A1 which happens when a person disposes of a CGT asset to someone else.

Under section 108-5 of the ITAA 1997 a CGT asset is any kind of property, or a legal or equitable right that is not property. CGT assets include part of or an interest in property or a legal or equitable right that is not property.

Subsection 104-10(3) of the ITAA 1997 provides that you dispose of a CGT asset when you either enter into a contract for its disposal, or where no contract exists, when the change of ownership occurs.

Subsection 104-10(4) of the ITAA 1997 provides that you make a capital gain if the capital proceeds from the disposal are more than the asset's cost base and you make a capital loss if those capital proceeds are less than the asset's reduced cost base.

Section 116-20 of the ITAA 1997 provides the definition of capital proceeds. Capital proceeds are the total of the money you have received or are entitled to receive and the market value of any other property you have received or are entitled to receive.

These terms are further defined in section 103-10 of the ITAA 1997. It states this Part (Part 3-1), and Part 3-3 apply to you as if you had received money or other property if it has been applied for your benefit (including by discharging all or part of a debt you owe) or as you direct.

In your case, you and your ex-spouse sold the Property as ordered by the Court, which triggered CGT event A1. Money was received in relation to the sale. You were ordered to distribute the proceeds of the sale of the property to various parties. All disbursements were debts owed by you including the payment of a portion of your share of the remainder to your ex-spouse.

Although you received XX% of the payment from the sale, not the XX% based on your ownership share, it is considered the XX% has been applied for your benefit. The fact that the money went to your ex-spouse, and you did not physically receive the XX% portion, does not alter the calculation of your capital gain. The money is considered to have been dealt with on your behalf under your Consent Orders.

The fact that your Consent Orders required a larger portion of the sale proceeds to be paid to your ex-spouse does not confer an additional XX% legal ownership of the property on them. Such an arrangement is private in nature. The capital gain from the sale of the Property is to be shared between yourself and your ex-spouse according to your legal interests in the property.