Private ruling: Capital gains tax marriage breakdown roll-over for small superannuation funds
Published: September 2014
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Questions and Answers: | 1. Due to a court order resulting from a marriage breakdown, can the assets if a self-managed superannuation fund (SMSF) be split, via an in-specie transfer, into two new SMSFs, with both transfers covered by the CGT roll-over relief? | No. | 2. To avoid a taxable CGT event on their member interest, must one of your members retain the existing SMSF? | Yes.

Relevant facts and circumstances: You have two members. Due to a marriage breakdown and subsequent divorce, your two members applied for and were granted a court order, which stipulates the assets of the joint SMSF be rolled into respective new individual SMSFs.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 126-D

Reasons for decision: Summary: Subdivision 126-D of the Income Tax Assessment Act 1997 is about same-asset roll-overs pertaining to small superannuation funds. In explaining the subdivision, paragraphs 4.7 and 4.9 of the Explanatory Memorandum to the Tax Laws Amendment (2007 Measures No. 5) Act 2007 ('EM') state: Subdivision 126-D of the ITAA 1997 is amended to provide a CGT roll-over on marriage breakdown for a transfer of any CGT asset reflecting the personal interest of either spouse (but not both) in a small superannuation fund to another complying superannuation fund if that transfer satisfies specific conditions. These amendments provide a CGT roll-over on marriage breakdown to defer the making of a capital gain or capital loss from a transfer of any asset reflecting the personal interest of one of the spouses from a small superannuation fund to another complying superannuation fund for the benefit of the transferor spouse The EM provides a series of examples, each showing the roll-over can only apply to one spouse: Example 4.1 Amy and David each have a personal interest in a small superannuation fund and there has not been any payment split. They reach a binding financial agreement on marriage breakdown which provides that the trustee transfer all of the assets reflecting David's personal interest to another complying superannuation fund. The assets reflecting David's personal interest consist of a parcel of shares and a rental property. The transfer of the parcel of shares is completed first. A CGT roll-over will apply to the transfer. Consequently no roll-over will then be available to the trustee for any transfer made for the benefit of Amy. When the trustee subsequently transfers the rental property, a CGT roll-over will also apply to that transfer. Example 4.2 In addition to the facts in Example 4.1, Amy acquired either a part or all of her personal interest as a result of a previous payment splitting order in her favour. A CGT roll-over will still apply to the transfer made for the benefit of David under the binding financial agreement. No roll-over will be available to the trustee for any transfer made for the benefit of Amy. Example 4.3 Andrew and Tracy each have a personal interest in a small superannuation fund. Tracy's interest is subject to a payment splitting agreement which entitles Andrew to future benefits from the fund. The agreement also stipulates that the trustee transfer all of the assets reflecting Andrew's personal interest to another complying superannuation fund. A CGT roll-over will apply to the transfer. No roll-over will then be available to the trustee for any transfer made for the benefit of Tracy. If the trustee subsequently transfers any asset reflecting Andrew's entitlement under the payment splitting agreement to his new superannuation fund, the existing marriage breakdown roll-over will apply to that transfer. Example 4.4 Matt and Karen each have a personal interest in a small superannuation fund. The trustee has previously obtained a CGT roll-over (under the existing marriage breakdown roll-over provisions) for the transfer of 5,000 shares from the fund to another small superannuation fund because of a payment splitting order in Karen's favour. As Karen has already started removing her superannuation from the fund, the trustee can no longer obtain a CGT roll-over for any transfer made for the benefit of Matt. If the trustee subsequently transfers all of the assets reflecting Karen's personal interest in accordance with any award, order or agreement specified in these new provisions, a CGT roll-over will apply to that transfer. The Tax Office web publication Guide to capital gains tax 2014 provides a similar example: Example 99: Transfer of superannuation interest. Danny and Claudia each have a personal interest in a small superannuation fund. They reach a binding financial agreement on marriage breakdown which provides that the trustee transfer all of the assets reflecting Danny's personal interest to another complying superannuation fund. The assets reflecting Danny's personal interest consist of a parcel of shares and a rental property. A CGT rollover will apply to the transfer. Consequently no rollover will then be available to the trustee for any transfer for the benefit of Claudia. In your case, provided the transfer of asserts satisfies specific conditions, the rollover will be available to you for the benefit of only one member. To avoid a taxable CGT event on their member interest, the other member must continue to use you as their SMSF.