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Edited version of private advice
Authorisation Number: 1052262301188
Date of advice: 20 June 2024
Ruling
Subject: Cost base - marriage rollover provision
Question 1
Is the first element of the property's cost base the market value at the time your ex-spouse transferred the asset to you?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
In 20XX your ex-spouse purchased the property. Your ex-spouse had sole ownership over the property.
A financial agreement under the Family Law Act 1975 was prepared. This financial agreement provided for the property to be transferred from your ex-spouse to you.
The property was transferred to you.
A sale contract to sell the property was signed. The property was sold.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 126-5
Income Tax Assessment Act 1997 section 110-25
Reasons for decision
Question 1
Is the first element of the property's cost base the market value at the time your ex-spouse transferred the asset to you?
Answer
No.
Detailed reasoning
The marriage breakdown roll-over will apply if the conditions set out in Subdivision 126-A of the Income Tax Assessment Act 1997 (ITAA 1997) are satisfied. Under paragraph 126-5(1)(d) of the ITAA 1997 there is a roll-over if a CGT event happens involving an individual (the transferor) and their former spouse (the transferee) because of a financial agreement made under Part VIIIA of the Family Law Act 1975 (FLA 1975),which includes a section 90C financial agreement. This roll-over is an automatic roll-over and will apply whether or not a taxpayer chooses for it to apply.
Here, the marriage roll-over will apply as a section 90C financial agreement was made between you and your ex-spouse which provided for the property to be transferred from your ex-spouse to you.
The cost base for capital gains tax purposes is calculated in accordance with subsection 126-5(5) of the ITAA 1997. Under subsection 126-5(5) of the ITAA 1997, if the asset was acquired by the transferor on or after 20 September 1985 and was transferred because of an appropriate financial agreement under the FLA 1975, the first element of the asset's cost base in the hands of the transferee is the assets cost base in the hands of the transferor at the time the transferee acquired it.
That is, the transferee spouse will "inherit" the transferor's cost base such that the cost base is the same as what the ex-spouse would have used to calculate the capital gain or loss if the asset had been sold instead of transferred. Therefore, in accordance with subsection 126-5(5) of the ITAA 1997, you retain the transferors cost base for the property.