Private ruling: Capital gains tax - marriage breakdown rollover - company
Date of advice: 19 August 2015
Published: August 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the capital gain that the Company, as the Trustee for the Family Trust, has made on the disposal of the property be disregarded pursuant to section 126-15 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: A and B lived together as a couple on a genuine domestic basis, as defined by section 35 of the Relationships Act 2008 VIC ( Relationships Act ) for around ten years. B issued a writ against A claiming relief pursuant to Part IX of the Property Law Act 1958 (VIC) after the relationship had ended. Terms of settlement were entered into and a notice of discontinuance was filed in relation to those proceedings (the first proceedings). A number of years later B commenced proceedings in the Federal Circuit Court of Australia (FCC) against A seeking, inter alia, an adjustment of property interests arising from what they asserted was the breakdown of an ongoing domestic relationship. The FCC proceedings commenced being heard during the following income year, but were adjourned a number of weeks later. Notwithstanding the settlement of the first proceedings, the parties agreed to the further provision for B as contained in a Deed and Agreement (the Deed and Agreement), dated a number of months after the FCC proceedings were adjourned. A and B agree that they did previously reside in a domestic relationship of the type contemplated by subsection 35(2) of the Relationships Act and that the jurisdiction to determine the adjustment of their financial interests would not be the FCC of the Family Court of Australia (Family Court). Accordingly, both A and B accept that any alteration of the property interests should be dealt with in accordance with the Relationships Act . The Company acts at the direction of A. The Company is the Trustee of A's Family Trust (the Family Trust). The Company is the registered proprietor of the land and building (the property), which were acquired by the Company after 20 September 1985. The Company holds the property in trust for the Family Trust. Part of the Agreement is for the Company to transfer all of the right, title and interest that the Company has in the property to B. In consideration for B agreeing to dismiss the FCC proceedings and waive for all time rights to seek a property settlement and spousal maintenance from A, whether by way of lump sum, periodic payment or otherwise, A agreed to transfer all right, title and interest that the Company has in the property, and other entitlements, to B in accordance with the provisions of the Agreement. The Deed and Agreement cannot be overruled by the courts. You have provided copies of a number of documents, which should be read in conjunction with and forms part of the scheme of this private ruling.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 126-A | Income Tax Assessment Act 1997 Section 126-5 | Income Tax Assessment Act 1997 Paragraph 126-5(1)(f) | Income Tax Assessment Act 1997 Subsection 126-5(4) | Income Tax Assessment Act 1997 Subsection 126-5(3A) | Income Tax Assessment Act 1997 Subsection 126-5(4) | Income Tax Assessment Act 1997 Subsection 126-15(1) | Income Tax Assessment Act 1997 Paragraph 126-15(1)(f) | Income Tax Assessment Act 1997 Subsection 126-25(1)

Reasons for decision: Detailed Reasoning - Marriage or relationship breakdown rollover: As a general rule, capital gains tax (CGT) applies to all changes of ownership of assets on or after 20 September 1985. However, the marriage breakdown rollover is available if the conditions set out in Subdivision 126-A of the ITAA 1997 are satisfied. This rollover ensures that the transferor spouse disregards a capital gain or capital loss that would otherwise arise. The rollover is an automatic rollover which applies whether or not a taxpayer chooses for it to apply. Paragraph 126-5(1)(f) of the ITAA 1997 states there is a roll-over if a capital gains tax (CGT) event (the trigger event) happens involving an individual (the transferor) and his or her spouse (the transferee), or a former spouse (also the transferee) because of something done under a written agreement: i. that is binding because of a State law, Territory law or foreign law relating to breakdowns of relationships between spouses; and ii. that, because of such a law, prevents a court making an order about matters to which the agreement applies, or that is inconsistent with the terms of the agreement in relation to those matters, unless the agreement is varied or set aside. Subsection 126-5(3A) of the ITAA 1997 provides that there is no roll-over because of paragraph 126-5(1)(f) of the ITAA 1997 unless the following conditions are met: (a.) At the time of the trigger event: i. the spouses, or former spouses, involved are separated; and ii. there is no reasonable likelihood of cohabitation being resumed; and (b.) The trigger event happened because of reasons directly connected with the breakdown of the relationship between the spouses or former spouses. Subsection 126-5(4) of the ITAA 1997 states that a capital gain or a capital loss the transferor makes from the CGT event is disregarded. Subsection 126-15(1) of the ITAA 1997 provides that the rollover consequences contained in section 126-5 of the ITAA 1997 will apply if the trigger event involves a company and a spouse or former spouse of another individual, and the event occurs because of something done under a written agreement, and the conditions listed above have been met. This means that the transferee spouse or former spouse takes the CGT asset with the CGT attributes it had in the hands of the transferor company. Where the requirements of section 126-15 of the ITAA 1997 are satisfied, the rollover is automatic and there is no need for any election to be made, nor can parties agree not to apply the provisions. If the rollover applies, a capital gain or capital loss the company makes from the CGT event is disregarded in accordance with subsection 126-5(4) of the ITAA 1997. Application to your situation In this case, the Company as the Trustee of the Family Trust is transferring the ownership in the property to B in accordance with a written agreement, the Deed and Agreement, which had been entered into under the Relationship Act provisions. The Deed and Agreement cannot be overruled by the courts. Based on the facts of this situation it is viewed that the conditions contained in paragraph 126-15(1)(f) of the ITAA 1997 have been met. Therefore, the rollover available under Subdivision 126-A of the ITAA 1997 will apply and any capital gain made on the transfer of the Company's ownership interest in the property to B can be disregarded.