Private ruling: Capital Gains tax marriage breakdown roll over relief.
Published: May 2013
Ruling period: 1 July 2011 to 30 June 2012
Date scheme commenced: On or after 1 July 2011

Ruling: Q1: Do the Capital gains tax marriage breakdown provisions, contained in Subdivision 126-A of the Income Tax Assessment Act 1997 , provide any CGT roll over relief for exemption in relation to the capital gains made as a consequence of the forced sale of Shares? | A1: No | Q2: If the response to question 1 is "No", is the taxpayer able to claim a capital loss in relevant year in relation to the interest bearing debentures to offset the capital gains made as a consequence of the forced sale of shares? | A2: No.

Relevant facts and circumstances: The taxpayer was legally separated. The joint assets at the time of their property settlement included the marital home and listed shares. The combined assets were not sufficient for one party to be transferred the shares and the other party to receive an equivalent sum in other assets. So, they were forced to sell the shares to effect the material asset split. As a consequence of the forced sale, capital gains were made on these shares. As a result of their marriage breakdown, the sale of the shares was subject to a binding financial agreement between the parties. The net capital gain made by the taxpayer for the relevant year meant the taxpayer would receive a large income tax bill. The shares were sold in the prior year. The taxpayer also jointly held an investment with a company. Receivers were appointed to this Company. The couple were jointly owed XXXX in unpaid return of Capital, which was a capital loss. No written declaration has been provided by the liquidators.

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 104-45 | Income Tax Assessment Act 1997 Section 126-A | Income Tax Assessment Act 1997 Section 126-5. Further issues for you to consider


Summary: Marriage breakdown and settlement of property, led to sale of shares. In your case, you are not eligible for the rollover as you did not transfer your shares and units to your ex spouse and the normal capital gains tax provisions apply. You also don't meet the condition of requirements that apply to a Capital Gains Tax event in the event of a marriage break down. | Detailed Reasoning: As a general rule, capital gains tax (CGT) applies to all changes of ownership of assets on or after 20 September 1985. | Subdivision 126-A of the ITAA 1997 states that where your legal, or de facto marriage ends, and you transfer an asset which you acquired on or after 20 September 1985 to your spouse, you may be eligible for marriage breakdown roll-over relief. | When a CGT asset is transferred between spouses under a court order, financial agreement, and award made in arbitration, a written agreement, after a marriage break down and certain conditions are met, any capital gains tax is deferred until a later CGT event happens to the asset (section 126-5 of the ITAA 1997) | 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. | There is however no roll-over relief where the asset is sold to another party and the proceeds are divided between you and your former spouse. | In your situation, you have sold the listed shares to another party and divided the proceeds between you and your former spouse according to the property settlement. | This means that you do not meet the requirements for marriage breakdown rollover relief. Therefore, you are liable for capital gains tax arising for the disposal of you property. | Summary: The taxpayer is unable to claim a capital loss in relevant year in relation to the interest bearing debentures to offset the capital gains made as a consequence of the forced sale of shares, because a CGT event A1 or CGT even G3 has not happened in respect of the debentures. | Detailed reasoning: For you to be able to claim a capital loss in relation to the debenture, against the capital gain made on the disposal of the listed shares, a capital loss must have been made. | A capital loss will have been made if a capital gains tax (CGT) event A1 (Section 104-10 of the ITAA 1997) or G3 (Section 104-45 of the ITAA 1997) happened in relation to the debentures. | CGT event A1 is in regards to the disposal of a CGT asset. This event happens when the disposal contract is entered into or, if no contract, when the entity stops being the assets owner. In your case you still own the debentures, therefore CGT event A1 did not happen. | CGT event G3 is in regards to a liquidator or administrator declaring shares or financial instruments worthless. In your case no written declaration, that the shares are worthless, has been made by the receiver or liquidator. Therefore CGT event G3 has not happened. | As neither CGT event A1 or G3 happened in the relevant financial year, you did not make a capital loss in respect of the debentures. Therefore, there is no capital loss to offset against the capital gain made on the disposal of the listed shares.