Private ruling: CGT and marriage breakdown
Date of advice: 31 August 2016
Published: October 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you liable for capital gains tax when your ex-spouse transferred their 50% share in the family home to you? | A1: No. | Q2: Are you liable for capital gains tax when you transferred your 50% ownership in the rental property to your ex-spouse? | A2: Yes.

Relevant facts and circumstances: You and your ex-spouse separated in 20XX. You and your ex-spouse purchased a rental property a number of years ago as joint tenants. You and your ex-spouse also owned a family home as joint tenants. As a part of a private settlement, your ex-spouse transferred her 50% ownership of the family home to you. You are now the sole owner of this property and it continues to be your main residence. On the same day you transferred your 50% ownership in the rental property to your ex-spouse. Your ex-spouse is now the sole owner of the property and it is now their main residence. This arrangement is a private property settlement not involving the courts.

Relevant legislative provisions: Income Tax Assessment Act 1997 subdivision 118-B | 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 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. | Detailed Reasoning - The family home: In your case, your ex-spouse transferred their 50% ownership in the family home to you. As you are not disposing of a CGT asset a CGT event will not take place for you. Therefore, you are not required to include any capital gain or loss in your income tax return as a result of the transfer. | Detailed Reasoning - The rental property: 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 your case, you did not transfer your share in the rental property to your ex-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. As such, you are required to calculate and include any capital gain or loss on the transfer of your portion of the ownership of your rental property, in your income tax return for the relevant financial year. Additional information For most CGT events, you will make a capital gain when the capital proceeds from the disposal of a CGT asset are more than the cost base of the asset. The capital gain is made at the time of the event happening. Capital proceeds are defined as being the consideration received for an event happening. However, special rules apply when you deal with someone in a non-arm's length transaction, or if you receive no capital proceeds from the event happening. In these cases, the transferor is taken to have received the market value of property at the time of the property transfer. Generally, spouses who divide assets under a private or informal arrangement won't have dealt with each other at arm's length in connection with the transfer. In such cases, the spouse who transferred the asset is taken to have received the market value of the asset at the time it was transferred.