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Introduction
With one in three marriages ending in divorce and many de facto relationships breaking down, the capital gains tax (CGT) roll-over provisions for “marriage and relationship breakdowns” have become increasingly relevant. These rules provide a CGT roll-over for the transfer of assets between separating parties, ensuring no immediate CGT liability. However, these concessions come with specific conditions and rules that apply to certain asset types.
Conditions for CGT Roll-Over
The primary condition for the CGT roll-over to apply is that the asset transfer must take place via a court order or a financial or maintenance agreement. A planning opportunity arises if one party wishes to realize a capital loss on an asset. By transferring the asset through a private agreement, outside of the defined CGT provisions, they can bypass this restriction.
Transfer to a Spouse Only
The CGT roll-over provisions only apply when the asset is transferred directly to the other spouse. It cannot be transferred to a discretionary trust, a private company, or the estate of the other spouse. The exception is if the asset is transferred to a child maintenance trust, though strict conditions still apply.
CGT Implications for the Receiving Spouse
If the CGT roll-over applies, the tax is deferred until the recipient spouse sells the asset or a CGT event occurs. The recipient will acquire the original cost base and may qualify for the 50% CGT discount if the asset is held long enough. Special rules apply when the transferred asset is a dwelling that becomes the receiving spouse’s home, which can lead to CGT liability for gains while the property was used as a rental.
Complex Rules for Family Assets
Complex rules apply when assets held by a family company or trust are transferred as part of a settlement. These situations require careful negotiations to ensure fairness and to manage the tax implications effectively. Consulting a professional can help navigate these CGT roll-over provisions to minimize unnecessary liabilities.
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