Private ruling: Capital gains tax - marriage breakdown rollover - transfer of shares.
Date of advice: 6 April 2017
Published: September 2017
Ruling period: Year ended 30 June 2017.
Date scheme commenced: 1 July 2016.

Ruling: Q1: Will the rollover provisions under Subdivision 126-A of the Income Tax Assessment Act 1997 (ITAA 1997) apply to the shares when transferred by you? | A1: Yes.

Relevant facts and circumstances: You jointly held shares in the company A with your former spouse. Your former spouse was trustee of the shares held in company A. You and your former spouse have separated. There is no likelihood of reconciliation with your former spouse. The Relevant Court of Australia has instructed that all benefits relating to the shares held in company A be transferred to your former spouse. Company A is not listed on any stock exchange, the shares are purchased and sold via company A's holding trust (Holding Trust A) as standard process. You and your former spouse transferred the shares held in company A to the Holding Trust A of company A. The same shares were transferred back to your former spouse a few days later with your former spouse being the sole owner and recipient of all future proceeds.

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 126-5 | Income Tax Assessment Act 1997 Section 126-15 | Income Tax Assessment Act 1997 Section 126-25 Summary | The rollover provisions under Subdivision 126-A of th the ITAA 1997 apply to the transfer of shares ordered by the Relevant Court of Australia.

Reasons for decision: Summary: CGT applies to all changes of ownership of assets on or after 20 September 1985. However under section 126-5 of the ITAA 1997 if you transfer an asset to your spouse as a result of the breakdown of your marriage or relationship, there is automatic rollover in certain cases This rollover ensures the transferor spouse disregards a capital gain or capital loss that would otherwise arise. In effect, the one who receives the asset (the transferee spouse) will make the capital gain or capital loss when they subsequently dispose of the asset. If you are the transferee spouse, the cost base of the asset is transferred to you. Section 126-15 of the ITAA 1997 deals with a CGT event involving a company or a trustee and a spouse or former spouse Subsection 126-15(1) of the ITAA 1997 states that the roll-over consequences in section 126-5 of the ITAA 1997 apply if the trigger event involves a company or a trustee and a spouse or former spouse of another individual because of: ● a court order under the Family Law Act 1975 or a corresponding foreign law; ● a court approved maintenance agreement under section 87 of that Act or a similar agreement under a foreign law; or ● court order under a State, Territory or foreign law relating to de facto marriage breakdown. Where the conditions for the relief are met, the relief applies automatically; it is not necessary for the taxpayer to elect for the relief to apply and it is not possible to elect that it not apply. In your case as a result of your marriage breakdown the shares in company A co-owned by you and your former spouse were ordered to be transferred to your former spouse under a Relevant Court Order complying with the Family Law Act of 1975 and section 126-15 of the ITAA 1997. To do this company A's procedures dictated that the shares in company A needed to be transferred to the company holding trust and then the same shares in company A were transferred to your former spouse as sole owner and recipient of benefits. Where the shares are transferred as the result of a court order under the Family Law Act 1975, the marriage rollover provisions will apply. Accordingly the marriage breakdown rollover will apply to you and any capital gain arising from the disposal can be disregarded.