Private ruling: capital gains tax
Published: December 2012
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Will you be liable for capital gains tax when your ex-spouse transfers their 50% share in property A to you? | A1: No. | Q2: Will you be liable for capital gains tax when you transfer your 50% ownership in property B to your ex-spouse? | A2: Yes.

Relevant facts and circumstances: You and your ex-spouse separated. On this date you and your ex-spouse jointly purchased property A for your ex-spouse to live in. You are currently still living in the marital home at property B with your children. This property is owned jointly with your ex-spouse and is your main residence. You and your ex-spouse divorced. You are currently in the process of transferring the ownership of these properties into individual names. After the transfers occur, you will be the sole owner of the property at property A and you ex-spouse will be the sole owner of the property at property B. Neither of the properties have been used to produce income. This arrangement is a private property settlement not involving the courts or lawyers.

Relevant legislative provisions: Income Tax Assessment Act 1997 subdivision 118-B, and | Income Tax Assessment Act 1997 section 118-110.

Reasons for decision: Summary: Capital gains tax (CGT) is the tax that you pay on certain gains which you make. You make a capital gain or capital loss as a result of a CGT event happening to an asset in which you have an ownership interest. The time of the CGT event is when you enter into the contract for the disposal or, if there is no contract, when the change of ownership occurs. In your case, your ex-spouse is going to transfer their 50% ownership in property A to you. At this point in time, a CGT event will not take place for you as you are not disposing of a CGT asset. Therefore, you are not required to include any capital gain or loss in your income tax return as a result of the transfer. Marriage breakdown - rollover In the event of a marriage breakdown there is automatic roll-over in certain cases when the necessary conditions have been met. The roll-over allows the transferor spouse to disregard a capital gain or capital loss that would otherwise arise. For a roll-over to apply in relation to a disposal of an asset due to marriage breakdown, the following conditions must be met: · the transfer must happen because of an order or court order made by consent under the Family Law Act 1975 (FLA 1975) or a similar law of a foreign country, · a maintenance agreement approved by a court under section 87 of that Act or a similar agreement under a foreign law, or · a court order under a State, Territory or foreign law relating to de facto marriage breakdowns. A CGT asset transferred between spouses by a private agreement is not viewed as having been transferred because of a court order. Even in the event that a court order later sanctions the transfer, it will not be viewed that the CGT asset was transferred under the court order as the ownership interest in the CGT asset has been disposed of prior to the court order, the date the transfer occurred. In this case, you did not transfer your share in property B to your spouse because of a court order and the conditions for the marriage breakdown rollover have not been met. Therefore, you will not be eligible for the rollover. Main residence exemption Generally, you ignore a capital gain or capital loss from a capital gains tax (CGT) event that happens to your ownership interest in a dwelling that is your main residence. To get the full exemption from CGT: · the dwelling must have been your home for the whole period you owned it · you must not have used the dwelling to produce assessable income, and · any land on which the dwelling is situated must be two hectares or less. If during a period a dwelling is your main residence and another dwelling is the main residence of your spouse you can choose one of the dwellings as your main residences or nominate the different dwellings as your main residences for the period. However, this does not apply to a spouse living permanently separately and apart from you. You and your ex-spouse specifically purchased the property for your ex-spouse to reside in whilst awaiting your divorce to be finalised. As you have never resided in the property and as you and your ex-spouse are living permanently separately apart, you are not eligible for a full or partial main residence exemption upon its sale. As you are not eligible for any other exemptions in relation to the disposal of your share in property B, you will not be able to disregard any capital gain made on the disposal of your share in the property. Therefore, any capital gain that you made on the disposal of your share in the property must be included in your income tax return.

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