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CGT roll-over between spouses on relationship breakdown

Roll-over relief automatically applies in certain cases involving the transfer of assets as a result of the breakdown of a marriage or a relationship. A compulsory same-asset roll-over happens if a CGT event involves an individual taxpayer disposing of an asset to, or creating an asset in, his or her spouse (or former spouse) because of:

  • (1) a court order under the Family Law Act 1975, a state law, territory law or foreign law relating to breakdown of relationships between spouses

  • (2) a court-approved maintenance agreement or a similar agreement under a foreign law

  • (3) a binding financial agreement under Pt VIIIA of the Family Law Act 1975 or a corresponding written agreement that is binding because of a corresponding foreign law

  • (4) an arbitral award under the Family Law Act 1975 or a corresponding arbitral award under a corresponding state, territory or foreign law

  • (5) a written agreement that is binding because of a state, territory or foreign law relating to breakdowns of relationships between spouses where the agreement cannot be overridden by a court order except to avoid injustice, or

  • (6) a Pt VIIIAB financial agreement under the Family Law Act 1975 or corresponding written agreement that is binding because of a corresponding foreign law (s 126-5).

In the case of (3), (5) and (6), the roll-over applies only if, at the time of the CGT event:

  • • the spouses are separated and there is no reasonable likelihood of cohabitation being resumed, and

  • • the CGT event happened because of reasons directly connected with the breakdown of the relationship between the spouses or former spouses (s 126-25).

However, roll-over relief is not available where the asset is transferred to a corporate trustee, even if the asset is transferred for the benefit of, or at the direction of, the former spouse (Sandini Pty Ltd & Ors 2018 ATC ¶20-651; [2018] FCAFC 44).

Where the roll-over applies, balancing adjustment relief is also available for depreciation purposes (¶17-710).

A marriage or relationship breakdown roll-over can only happen if an asset is disposed of because CGT event A1 or B1 happens or if an asset is created because CGT event D1, D2, D3 or F1 happens.

However, there is no marriage or relationship breakdown roll-over if the asset involved is trading stock of the transferor spouse or, in the case of CGT event B1, title in the asset does not pass to the transferee spouse when the agreement ends.

The various aspects of marriage breakdown roll-overs are dealt with in TD 1999/47 to TD 1999/61.

Capital gain or loss of transferor spouse disregarded

If a marriage or relationship breakdown roll-over happens, any capital gain or loss from the CGT event made by the transferor spouse is disregarded.

Consequences for transferee spouse in disposal situation

If a post-CGT asset of the transferor spouse is disposed of to the transferee spouse and there is a marriage or relationship breakdown roll-over, the first element of the asset’s cost base (or reduced cost base) in the hands of the transferee is the asset’s cost base (or reduced cost base) in the hands of the transferor at the time the transferee acquires it.

Example

Jen transfers land to her former spouse, Alf, because of a court order under the Family Law Act 1975. Any capital gain or loss Jen makes from the disposal is disregarded. If the cost base of the land to Jen at the time Alf acquired it is $100,000, the first element of the land’s cost base in Alf’s hands is $100,000.

If a pre-CGT asset of the transferor is disposed of to the transferee, it is also taken to be a pre-CGT asset in the hands of the transferee.

If a collectable or a personal use asset is disposed of by the transferor, it retains the same character in the hands of the transferee.

Consequences for transferee spouse in creation situation

If the transferor spouse creates an asset in the transferee spouse and there is a marriage or relationship breakdown roll-over, the first element of the asset’s cost base (or reduced cost base) in the hands of the transferee is:

  • • if the asset is created as a result of CGT event D1, the incidental costs incurred by the transferor in relation to that event

  • • if the asset is created as a result of CGT event D2, the expenditure incurred by the transferor in granting the option

  • • if the asset is created as a result of CGT event D3, the expenditure incurred by the transferor in granting the right, or

  • • if the asset is created as a result of CGT event F1, the expenditure incurred by the transferor on the grant, renewal or extension of the lease.

Associated provisions

For the calculation of the main residence exemption where a marriage or relationship breakdown roll-over is available, see ¶11-750. For the exemption relating to marriage or relationship breakdown settlements, see ¶11-670.

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