Private ruling: Capital gains tax - marriage breakdown - transfer of main residence and disposal
Published: September 2013
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you liable for any capital gain or capital loss made on the transfer of your former spouse's interest in the property into your name? | A1: No | Q2: Is the capital gain or capital loss made on the disposal of the property disregarded? | A2: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. After 20 September 1985, you and your former spoused jointly purchased a property. The property was you and your former spouse's main residence. You and your former spouse separated approximately 12 months ago. You and your former spouse applied for a Consent Order to divide up your assets and liabilities. Your Consent Order was recently handed down. Your former spouse is in process of transferring the properties into their respective names as per the Consent Order. The property will be transferred into your name. You will dispose of the property this year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 104-10 | Income Tax Assessment Act 1997 Section 108-7 | Income Tax Assessment Act 1997 Section 126-5 | Family Law Act 1975 Section 75.

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. The most common capital gains tax (CGT) event, CGT event A1 occurs when you dispose of an asset to another entity. The time of the event is when you enter into the contract for disposal or if there is no contract when the change of ownership occurs. | Detailed Reasoning - Joint owners: For CGT purposes co-owners of an asset will generally hold the asset as joint tenants or tenants in common. Joint tenants are treated as if they each owned a separate CGT asset constituted by an equal interest in the asset as a tenant in common. | Detailed Reasoning - Marriage breakdown: Where an asset is transferred to a spouse as a result of a marriage breakdown, there is an automatic rollover in certain cases (you cannot choose whether or not it applies). For the rollover conditions to be met, a CGT event must have happened because of: · an order of a court or court order made by consent under Family Law Act 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 reign law relating to de facto marriage breakdowns. In effect, the one who receives the asset (the transferee spouse) will make the capital gain or capital loss when they dispose of the asset. Where the asset is transferred to the transferee spouse and there is a marriage breakdown rollover, the transferee spouse is taken to have acquired the asset at the time they received it from their former spouse for the cost base of the former spouse. | Detailed Reasoning - Interest acquired from your former spouse: If a dwelling, or an interest in a dwelling, acquired by your spouse on or after 20 September 1985, is transferred to you under a CGT event that happened after 12 December 2006, and marriage breakdown rollover applies, you take into account the way in which both of you used the dwelling during your combined period of ownership when determining your eligibility for the main residence exemption. This means you are entitled to a full exemption from CGT (when you dispose of it) if the land on which the dwelling is situated is two hectares or less, and: · during the period your spouse owned the dwelling, it was their main residence and was not being used by them to produce assessable income, and · during the period you owned the dwelling it was your main residence and was not being used by you to produce assessable income. In your case, you and your former spouse owned a 50% interest in the property. As a result of a marriage breakdown your former spouse's interest was transferred to you under a Consent Order and the rollover provisions have been met. Therefore, no capital gain or capital loss is incurred upon the transfer of your former spouse's interest in the property Avenue into your name. You will continue to reside in the property until its disposal. Therefore, you are entitled to the full main residence exemption and any capital gain or capital loss you make on its disposal is disregarded.