Edited version of private advice

Authorisation Number: 1052294648138

Date of advice: 30 August 2024

Ruling

Subject: Capital proceeds - sale of property

Question

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

Answer

No.

This private ruling applies for the following period:

Year ended X June 20XX

The scheme commenced on:

XX July 20XX

Relevant facts and circumstances

You purchased the Property in 20XX.

You held 100% ownership of the Property.

The Property was held for investment purposes, and you never lived in it.

In 20XX, your marriage broke down.

In 20XX, the Federal Circuit and Family Court of Australia ('The Family Court') ordered you to sell the Property.

You provided a copy of Court Orders between you as the 'Applicant' and your ex-spouse as the 'Respondent'.

The Court Orders directed your ex-spouse to remove the caveat to enable completion of the sale of the Property to proceed in accordance with the Contract of Sale.

In accordance with the Court Order, the Family Court ordered you to pay your ex-spouse $XX from the proceeds of the sale of the Property.

Settlement of the Property occurred on X XX 20XX.

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

Summary

The payment of a portion of the remaining sale proceeds to your ex-spouse does not confer a percentage of legal ownership of the Property on them. Such an arrangement is private in nature.

CGT event A1 occurred on the sale of the Property where you must declare the capital gain or loss in your tax return apportioned according to your legal ownership interest in the Property, being 100%. Therefore, the capital proceeds of the sale of the Property are not apportioned according to the Interim Order.

Detailed reasoning

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 capital gains tax ('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 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.

Application to circumstances

In your case, the marriage breakdown rollover provision in section 126-5 of the ITAA 1997 does not apply as the Property was not transferred between parties but was sold, which triggered CGT event A1.

You received money in relation to the sale of the Property. You were ordered to distribute the proceeds of the sale of the Property to various parties. All disbursements were debts owed, associated with the sale of the Property, including the payment of $XX, being a portion of the remaining sale proceeds to your ex-spouse in accordance with the Interim Order.

The fact that the Interim Order required you to pay a portion of the sale proceeds to your ex-spouse does not confer a percentage of legal ownership of the Property on them. Such an arrangement is private in nature. The percentage of the sale proceeds paid to your ex-spouse was applied for your benefit and does not alter the calculation of your capital gain.

CGT event A1 occurred on the sale of the Property where you must declare the capital gain or loss in your tax return apportioned according to your legal ownership interest in the Property, being 100%.