Private ruling: capital gains tax - marriage breakdown rollover - CGT event involving company or trustee - pre-CGT asset - separate asset
Published: February 2012
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2011

Ruling: Q1:  | A1:  | Q2:  | A2:  | Q3:  | A3: 


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 108-55 | Income Tax Assessment Act 1997 Section 116-40 | Income Tax Assessment Act 1997 Section 126-5 | Income Tax Assessment Act 1997 Section 126-15 | Income Tax Assessment Act 1997 Section 126-25 | Family Law Act 1975 Section 87

Reasons for decision: Detailed Reasoning - Marriage breakdown rollover: Capital gains tax (CGT) is the tax you pay on certain gains you make. You make a capital gain or a capital loss because of a CGT event happening (section 102-20 of the Income Tax Assessment Act 1997 (ITAA 1997). As a general rule, CGT applies to all changes of ownership of assets on or after 20 September 1985. However, 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 under section 126-5 of the ITAA 1997. 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 · a 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. Assets acquired by the transferor before 20 September 1985 If a CGT asset, including a share of a jointly owned asset, was transferred to you because of the breakdown of your marriage or relationship and it was acquired by the transferor before 20 September 1985, you are also taken to have acquired the asset before that date. You disregard any capital gain or capital loss you make when you later dispose of the asset. However, if you make a major capital improvement to that asset after 20 September 1985, you may be subject to CGT when you dispose of it or another CGT event happens to that asset. Buildings and structures on land acquired before 20 September 1985 A building or structure on land that you acquired before 20 September 1985 is a separate asset if: · You entered into a contract for the construction of the building or structure on or after that date; or · There is no contract for its construction - construction began on or after that date. The rules are different if the asset was acquired by the transferor on or after 20 September 1985. In this case, if you receive the CGT asset (or a share of a jointly owned asset) and there is a marriage or relationship breakdown rollover, you are taken to have acquired the asset (or share of the asset) at the time it was transferred from your spouse (or the company or trustee). | Detailed Reasoning - Conclusion: In your situation, the property was acquired by Company A before 20 September 1985. Construction of a dwelling on the property was commenced after 20 September 1985. As a continuation of the settlement of your marriage breakdown, a new financial agreement will be drawn up which provides that the property will be transferred to you from the Family Trust as the result of a Family Court order. The marriage rollover provisions contained in sections 126-5 and 126-15 of the ITAA 1997 will apply to the transfer of the property. The land component of the property was acquired prior to 20 September 1985 by Company A. You are deemed to have acquired the land component of the property before that date a result of the rollover. Therefore, the land component of the property will retain its pre-CGT status as a result of the rollover. You are deemed to have acquired the dwelling located on the property on the date it was transferred to you as it is a separate asset from the land component of the property because it was constructed after 20 September 1985. This means that it is a post-CGT asset and the first element of the cost base of the dwelling will be the same as the first element of the cost base of the dwelling in the hands of the trust at the time of the transfer. At the time of any future CGT event occurring to the property, such as when you dispose of it, you cannot rollover any capital gain made on the disposal of the dwelling. You will need to apportion the capital proceeds you receive for the disposal of the property between the pre-CGT land and the post-CGT dwelling components. Therefore, it will be necessary for you to calculate a separate cost base for both the land component and the dwelling. Whilst taxpayers are not required to get an independent valuation to justify the apportionment, they must ensure they take adequate steps in working out the proper value of the particular asset.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Subject: capital gains tax - marriage breakdown rollover - CGT event involving company or trustee - pre-CGT asset - separate asset: Question 1: Will the rollover provisions under section 126-15 of the Income Tax Assessment Act 1997 apply when the property is transferred from the Family Trust into your name? | Question 2: Will the land component of the property retain its pre-capital gains tax status upon the transfer from the Family Trust to you under a Family Court order? | Question 3: Will you be eligible to rollover any capital gain made on the disposal of the dwelling in the future? | Relevant facts: Prior to 20 September 1985, Company A purchased a property consisting of vacant land. | You are a shareholder and the director of Company A. | Company A is the Trustee of a Family Trust (the Family Trust). | You separated from your spouse after 20 September 1985. | You entered into a Deed of Settlement (the Deed) between yourself, your former spouse and Company A a number of years after your separation, subject to the approval of the Family Court of Australia (the Family Court) on the terms of the Deed and Company A agreeing to join in the Deed. | Under the Deed, you were required to subdivide the property, build a dwelling on the property, and transfer the title to your spouse. | Construction of the dwelling commenced within a short time after the entering of the Deed and was completed a number of months later and your former spouse moved into the dwelling. | The subdivision of the property was refused. | A number of years later, your former spouse remarried and moved out of the dwelling, with you moving into the dwelling within days after it was vacated, and continuing to reside there until the present time. | You agreed to take over the loan your former spouse had obtained to build the dwelling, and it was agreed that you would retain the whole of the property. | After a number of years, your former spouse commenced further proceedings under Section 79 of the Family Law Act 1975 and you entered into a new agreement with your former spouse and Company A. | The title of the property was transferred to you as Trustee of the Family Trust a number of years later. | The property is not an active asset of the Family Trust. | You intend having a new financial agreement drawn up, to be approved by the Family Court, which provides that the property will be transferred from you, as the Trustee of the Family Trust, into your name as an individual. | You provided copies of a number of documents, which should be read in conjunction with, and forms part of this private ruling. | Assumption: You will obtain a court order approved by the Family Court to settle your marriage breakdown. You, your former spouse and the company will be parties to the court order. The court order will provide that the property will be transferred from you, as the Trustee of the Family Trust, into your name as an individual.