Private ruling: CGT - disposal - shares - marriage breakdown
Published: March 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will you be liable for capital gains tax (CGT) on the capital gain from the disposal of your ownership interest in a share portfolio when your ex-spouse will retain XX% of the proceeds of the sale? | A1: Yes

Relevant facts and circumstances: You and your ex-spouse separated in 20XX. You and your ex-spouse jointly and separately held shares in a share portfolio. You and your ex-spouse sold the shares in the portfolio and received approximately $XXX,XXX from the sale. Your ex-spouse received $XXX,XXX and you received $XX,XXX from the proceeds of the sale of the share portfolio as per the Financial Agreement dated XX XXXXX 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 102-20 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 118-130

Reasons for decision: Summary: Capital gains tax (CGT) is the tax that you pay on certain gains you make. 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, CGT event A1, occurs when you dispose of your ownership interest in a CGT asset to another entity. There are exceptions to the general rule about the application of the capital gains provisions. For example, under the marriage breakdown exception, any capital gain or capital loss you make is disregarded where the transfer of an asset is brought about as a result of a Court order issued under the Family Law Act 1975 and the asset is transferred to one of the spouses in compliance with the court order. In your case, you and your ex-spouse disposed of the shares in the portfolio. As a part of the financial agreement, your ex-spouse retained $XXX,XXX of the proceeds from the sale. As you did not transfer your interests in the shares to your ex-spouse, the marriage breakdown exception does not apply. When considering the disposal of your interest in shares, the most important element in the application of the CGT provisions is ownership. It must be determined who is the legal owner of the shares. In absence to the contrary, shares are considered to be owned by person(s) named on the share register administered by the Australian Stock Exchange. As none of the exceptions to the general rule apply, you will be responsible for any capital gains tax liability on the portion of the shares that you own at the time you disposed of then. It is the ownership of the asset when it is disposed of that determines the CGT liabilities, not who will ultimately retains the proceeds of the sale. Therefore, you must include any capital gain made on the disposal of your ownership interest in the shares.