Edited version of private advice

Authorisation Number: 1052362071812

Date of advice: 17 February 2025

Ruling

Subject: CGT - exemption

Question

Will the CGT exemption in section 126-5 of the Income Tax Assessment Act 1997 apply when the Person B transfers their interest in the former marital residence to the person A more than two years after the time frame stipulated in the Consent Orders made by the Federal Circuit and Family Court of Australia under the Family Law Act 1975?

Answer

Yes.

This ruling applies for the following period:

DD MM YYYY to DD MM YYYY

The scheme commenced

DD MM YYYY

Relevant facts and circumstances

On DD MM YYYY, the Federal Circuit and Family Court of Australia made Consent Orders under the Family Law Act 1975 relating to the breakdown of the relationship between Person A (the Wife) and Person B (the Husband).

Clause xx of the Consent Orders required the person B and the person A, within sixty days of the date of the Orders, to do all acts and things including signing all documents and providing all PEXA identification and authorities necessary to transfer to the person A all rights, title, and interest in the property situated at xxx, xxx in the State of xxx. This property is the former marital residence.

The person A failed to take any action in regard to Clause xx until MM YYYY.

Assumption

The person B will transfer to the person A all rights, title, and interest in the property in the income year ending DD MM YYYY.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 102-20

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 subdivision 126-A

Income Tax Assessment Act 1997 section 126-5

Does IVA apply to this private ruling?

Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement.

If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidance rule for income tax'.

Reasons for decision

All legislative references are to the Income Tax Assessment Act 1997 unless stated otherwise.

Question

Will the CGT exemption in section 126-5 apply when the person B transfers their interest in the former marital residence to the person A more than two years after the time frame stipulated in the Consent Orders made by the Federal Circuit and Family Court of Australia under the Family Law Act 1975?

Answer

Yes.

Detailed reasoning

Section 102-20 states that a capital gain or capital loss is made only if a capital gains tax (CGT) event happens to a CGT asset. Under section 104-10, CGT event A1 happens if you dispose of a CGT asset. Disposal of a CGT asset happens when a change of ownership occurs from one entity to another. Your transfer of the property will trigger CGT event A1 because you will dispose of that CGT asset.

Subdivision 126-A outlines the circumstances where roll-over relief will apply to the transfer of a CGT asset to a spouse or former spouse as the result of the breakdown of a marriage or relationship. Where the roll-over relief applies, there will be no CGT implications for the transferor as a result of the CGT event.

Pursuant to paragraph 126-5(1)(a), the roll-over relief will apply where the CGT event happens involving an individual (the transferor)) and his or her spouse (the transferee), or a former spouse (also the transferee), because of a court order under the Family Law Act 1975.

An order made by consent is a 'court order' for the purposes of paragraphs 126-5(1)(a). This is consistent with our view in Tax Determination TD 1999/47 Income tax: capital gains: is there roll-over under section 126-5 or 126-15 of the Income Tax Assessment Act 1997 if a CGT event happens because of a court order under the Family Law Act 1975 made by consent? The consent orders here are court orders under the Family Law Act.

A roll-over is available even if the asset is transferred after the time limit specified in the court order. We accept that the CGT event happens 'because of' the court order even if the transfer occurs after the time limit specified in the court order. This is consistent with our view in Tax Determination TD 1999/54 Income tax: capital gains: is there roll-over under section 126-5 or 126-15 of the Income Tax Assessment Act 1997 if a CGT asset is transferred in accordance with the terms of a court order under the Family Law Act 1975 but after the time limit specified in the court order? The transfer of the property will happen because of' the court order, despite the transfer occurring later than contemplated by those court orders.

As a result, the CGT rollover relief in section 126-5 will apply when the person B transfers their interest in the property (the former marital residence) to the person A.