Private ruling: Capital gains tax
Date of advice: 10 June 2016
Published: July 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Is the sale of the property exempt from capital gains tax because it is deemed to have been acquired prior to 20 September 1985? | A1: Yes.

Relevant facts and circumstances: The property was purchased by your former spouse before 20 September 1985. Your former spouse subsequently transferred the property to you after 20 September 1985. This transfer was as a result of a breakdown in your marriage. The transfer documents refer to the transfer of the property as being 'in accordance with the terms of Maintenance Agreement'. You advise that the maintenance agreement was made by an order of the Family Court. You advise that no significant capital improvements have been made to the property.

Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 126-5

Reasons for decision: Summary: As a general rule, capital gains tax (CGT) applies to all CGT events involving assets which were acquired after 20 September 1985. However, if an asset was transferred to you as a result of the breakdown of your marriage, an automatic rollover applies in certain cases. This rollover ensures the transferor spouse disregards a capital gain or loss that would otherwise arise. In effect, the one who receives the asset will make the capital gain or loss when they subsequently dispose of the asset. However, if the asset was acquired by the spouse transferring the asset before 20 September 1985, you are also taken to have acquired the asset before that date. Consequently, any capital gain or capital loss made on the later disposal of the asset is disregarded. However, if you make a major capital improvement to that asset after 20 September 1985, you may be subject to CGT when you dispose of it or another CGT event happens to that asset. The rollover is only available where the transfer of an asset is pursuant to: a) a court order under the Family Law Act 1975 or a corresponding foreign law; or b) a court approved maintenance agreement under section 87 of the Family Law Act 1975 or a similar agreement under a foreign law. The presence of a maintenance agreement that has only been registered with the Family Court under section 86 of the Family Law Act 1997 (rather than one made by the Family Court) is not sufficient to obtain the rollover (TD 1999/46W Income tax: capital gains: is there roll-over under section 126-5 of 126-15 of the Income Tax Assessment Act 1997 if a CGT event happens because of a maintenance agreement registered under section 86 of the Family Law Act 1975? ). 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 not apply. | Detailed Reasoning - Application to your circumstances: In your case, your former spouse purchased the property before 20 September 1985. You later divorced and the property subsequently transferred to you after 20 September 1985 in accordance with the terms of a maintenance agreement between you and your former spouse. You advise that this maintenance agreement was made by the Family Court. Accordingly, the conditions in section 126-5 of the ITAA 1997 were met and the marriage breakdown rollover applied. As a result, you are deemed to have acquired the property on the day your former spouse acquired the property. You therefore hold the property as a pre-CGT asset. As you have made no significant capital improvements to the property, the disposal of the property will be exempt from capital gains tax.