Edited version of private advice

Authorisation Number: 1052326480304

Date of advice: 1 November 2024

Ruling

Subject: CGT - rollover relief

Question

Will the marriage or relationship breakdown rollover provisions under Subdivision 126-A of the Income Tax Assessment Act 1997 (ITAA 1997) apply to the interest in a property transferred from your partner to you?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2021.

The scheme commenced on:

1 July 2020

Relevant facts and circumstances

In early 20XX, you solely acquired a rental property (Property A).

The property was used to produce incomeuntil mid 20XX.

In late 20XX, you and your partner jointly acquired a property (Property B).

You and your partner have used Property B as your main residence, until you separated.

Under a settlement arrangement with your partner, you transferred your ownership interest in Property A to your partner and your partner transferred their 50% interest in Property B to you.

The arrangement was not a court ordered settlement.

There was no monetary gain from these transfers.

You provided a Statutory Declaration confirming that as a consequence of the breakdown of your relationship with your partner, you have no further interest or claim in Property A.

You reunited with your partner in month 20XX.

Relevant legislative provisions

Income Tax Assessment Act (ITAA 1997) subdivision 126-A

Income Tax Assessment Act (ITAA 1997) subdivision 126-5

Income Tax Assessment Act (ITAA 1997) section 112-20

Reasons for decision

Marriage or relationship breakdown rollover relief

As a general rule, capital gains tax (CGT) applies to all changes of ownership of assets acquired on or after 20 September 1985. However, marriage or relationship breakdown rollover relief under Subdivision 126-A of the ITAA 1997 is potentially available when CGT event A1 happens involving asset transfers between spouses or former spouses.

The rollover applies if your marriage or relationship ended on or after 20 September 1985, and:

• you transfer an asset or a share of an asset to your spouse
• you receive an asset or a share of an asset from your spouse, or
• a company or trustee of a trust transfers an asset to you or your spouse.

Prior to 13 December 2006, for the rollover to apply, the capital gains tax (CGT) event must have happened because of:

• an order of a court or a court order made by consent under the Family Law Act 1975, or a similar law of a foreign country, or
• a court order under a state, territory or foreign law relating to breakdown of relationship between spouses.

From the 13 December 2006, marriage breakdown rollover relief under section 126-5 of the ITAA 1997 applies if CGT event A1 happens because of something done under a written agreement that is binding because of a state, territory or foreign law relating to de facto marriage breakdowns.

Where the conditions for the relief are met, the relief applies automatically; it is not necessary for the taxpayer to elect for the relief to apply and it is not possible to elect that it does not apply. However, if you and your spouse divide your property under a private or informal agreement, the marriage or relationship breakdown rollover does not apply. In this case, the spouse to whom the asset is transferred is taken to have acquired the asset at the time of transfer.

Application to your situation

In your case, you did not acquire the interest from your partner under a court order and the conditions for the marriage or relationship breakdown rollover have not been met. You are considered to have acquired the additional interest in the property upon transfer to you from your partner in 20XX.

Where you have not dealt at arm's length with your partner, you are required to use the market value of the property when calculating the cost base (section 112-20 of the ITAA 1997). The first element of your cost base will be replaced with the market value at that time that you acquired the property in 20XX.