Edited version of private advice

Authorisation Number: 1052309021169

Date of advice: 24 September 2024

Ruling

Subject: CGT - marriage breakdown rollover

Question

Will the marriage breakdown rollover provision under section 126-5 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to your portion of your ownership interest in the properties transferred by you to your ex-spouse?

Answer

Yes.

You transferred the portion of ownership interest in the properties to your ex-spouse in compliance with a Court Order made under the Family Law Act 1975.

Therefore, as the condition for the marriage breakdown rollover provision under section 126-5 of the Income Tax Assessment Act 1997 will apply. This will allow you to disregard any capital gain or capital loss made from the transfer of your interest in the properties to your ex-spouse.

This ruling applies for the following period:

Year ended 30 June 2023

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You and your ex-spouse jointly purchased Property 1 and Property 2.

You used both the properties as main residence at different times of joint ownership period.

On XX/XX/20XX, you and your ex-spouse filed for divorce court order to be separated.

On XX/XX/20XX, the marriage was terminated under the Family Law Act 1975.

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

On XX/XX/20XX, you transferred your ownership interest for property 1 and property 2 to your ex-spouse.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 section 126-5

Reasons for decision

As a general rule, CGT applies to all changes of ownership of assets on or after 20 September 1985. When considering the disposal of your interest in a property, the most important element in the application of the CGT provisions is ownership.

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 an asset to someone else.

A CGT event A1 occurred when you transferred the properties your ex-spouse.

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, where you transfer an asset to your spouse or ex-spouse as a result of a marriage breakdown, there is an automatic rollover in certain cases. The rollover allows the transferor spouse to disregard any capital gain or capital loss that would be realised.

This rollover ensures the transferor spouse disregards a capital gain or capital loss that would otherwise arise. In effect, the one who receives the asset (the transferee spouse) will make the capital gain or capital loss when they subsequently dispose of the asset. If you are the transferee spouse, the cost base of the asset is transferred to you.

In order for the marriage breakdown rollover to apply, the CGT event must happen because of an order of a court or court order made by consent under the Family Law Act 1975 or a similar law of a foreign country.

If the rollover applies, the spouse transferring the asset disregards any capital gain or capital loss they make on the transfer.

In your case, you did transfer the ownership of both the properties to your ex-spouse.

The legislation specifies that rollover relief can only occur if the asset is transferred to the other spouse. Accordingly, the marriage breakdown relief provision will apply to your situation.