Edited version of private advice

Authorisation Number: 1052217457100

Date of advice: 5 February 2024

Ruling

Subject: CGT - investment property

Question

Are your capital proceeds from the sale of the investment property equal to XX% of the sale price?

Answer

Yes.

This ruling applies for the following period:

Year ended XX XXXX 20YY

The scheme commenced on:

XX XXXX 20YY

Relevant facts and circumstances

You and your former spouse purchased an investment property as joint tenants on XX XXXX 20YY.

You and your former spouse sold the property on XX XXXX 20YY.

The proceeds of the sale were transferred and held within the conveyancers trust account.

You and your former spouse separated within the 20YY financial year.

Final court orders by consent obtained from the Family Court on XX XXXX 20YY ordered a distribution to your former spouse from the conveyancers trust account.

You received a distribution from the conveyancers trust account and your former spouse was ordered to transfer their rights, title and interest in the other property owned to you.

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

Income Tax Assessment Act 1997 subdivision 126-A

Reasons for decision

Section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a capital gain or capital loss results from a capital gains tax (CGT) event occurring. 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.

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 even if it is received at a later time.

In certain situations, the capital gain or capital loss made as a result of a CGT event can be disregarded or rolled over. Section 126-5 of the ITAA 1997 states that 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 agreement or court order made under the Family Law Act 1975.

Application to your circumstances

In your case, the Federal Circuit and Family Court of Australia made orders by consent that the funds held within the conveyancers trust account be distributed to your former spouse and yourself. These funds held within the trust account were the proceeds from the CGT event A1 triggered when the property was sold on XX XXXX 20YY.

The capital proceeds are applied to your benefit as this money was included within the marriage property pool and dealt with within your Consent Orders. The proceeds were then utilised to discharge a debt owed to your former spouse as set out within the consent orders. The fact that the money in respect of your ownership interest went to your spouse does not alter the calculation of your capital gain.

The capital gain from the sale of the Property is to be shared between yourself and your former spouse according to your legal interests in the property.

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