Private ruling: CGT - rollover relationship breakdown
Date of advice: 8 May 2024
Published: 17 June 2024
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Will the roll-over under section 126-5 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to the transfer of shares to your former spouse? | A1: Yes. The disposal of shares in these circumstances enables you to use the relationship breakdown rollover in section 126-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Any capital gain or loss incurred on the exercise of the option and subsequent transfer of shares will be subject to the roll over and is disregarded.

Relevant facts and circumstances: You and your former spouse shared a de facto relationship. Whilst in the relationship with your former spouse, you started a company together. You were appointed as the sole director, and you and your former spouse were each issued shares. You and your former spouse separated. You and your former spouse agreed to a binding financial arrangement executed under section 90G of the Family Law Act 1975. This binding financial arrangement put the following terms into effect: • The former spouse would be appointed the director of the company. • You and your former spouse would retain your respective interests in the company until there was mutual termination of business interests. • If either party were to exit the business, the exiting spouse will give 60 days' notice of this intention and offer an option to the other spouse of purchasing the remaining interest in the business at a value calculated by a formula. • The remaining party would pay out the other 50% of the business value and 50% of the remaining stock subject to stocktake. • Save for the business value, the terms and conditions of the sale of the business shall be as agreed between the parties and in default of such agreement as nominated by the President of the Real Estate Institute and their nominee. • The remaining party must accept the option in writing. • Where the option is declined, the business shall be sold and the terms and conditions of the sale shall be as agreed between the parties. The effect of granting the option under this financial arrangement gives rise to a CGT event D2. If the option is exercised, the capital gain or loss on the CGT event D2 is disregarded and becomes a CGT event A1. You advised your former spouse that you wished to exercise your rights under the agreement to exit the business, you gave notice to them in accordance with the requirements of the agreement and granted an option to them to purchase your share of the business triggering a CGT event D2. Your former spouse exercised the option on the shares and paid you an amount, consistent with the valuation at the time, triggering a CGT event A1. The share sale agreement included reference to the financial arrangement and stated that it was carried out in accordance with the arrangement. You resigned as a director of the company, and the final settlement of the share transfer occurred on.XXXX There is no reasonable likelihood of cohabitation will be resumed.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 104-40 | Income Tax Assessment Act 1997 section 126-5 | Income Tax Assessment Act 1997 section 126-25