Capital Gains Tax and Family Law Property Settlements

18 November 2016 | Written by Warwick Gilbertson | Personal Law, Family Law

If you separate and you are considering retaining assets that if sold would result in a Capital Gains Taxation (“CGT”) liability or if you are selling an asset at the time of property settlement that would result in a CGT liability you need specialised family law advice.

The proper approach to be adopted by a Court in family law proceedings in relation to the effect of potential CGT is noted below:

1. Whether capital gains tax should be taken into account in valuing a particular asset varies according to the circumstances of the case, including

the method of valuation applied to the particular asset;
the likelihood or otherwise of that asset being realised in the foreseeable future;
the circumstances of its acquisition and the evidence of the parties as to their intentions in relation to that asset;

2. If the Court orders the sale of an asset, or is satisfied that a sale of it is inevitable, or would probably occur in the near future, or if the asset is one which was acquired solely as an investment and with a view to its ultimate sale for profit, then, generally, allowance should be made for any capital gains tax payable upon such a sale in determining the value of that asset for the purpose of the proceedings.

3. If none of the circumstances referred to in paragraph 2 applies to a particular asset, but the Court is satisfied that there is a significant risk that the asset will have to be sold in the short to mid-term, then the Court, whilst not making allowance for the CGT payable on such a sale in determining the value of the asset, may take that risk into account as a relevant future factor, the weight to be attributed to that factor varying according to the degree of the risk and the length of the period within which the sale may occur.

There may be special circumstances in a particular case which, despite the absence of any certainty or even likelihood of a sale of an asset in the foreseeable future, make it appropriate to take CGT into account in valuing that asset. In such a case, it may be appropriate to take the capital gains tax into account at its full rate, or at some discounted rate, having regard to the degree of risk of a sale occurring and/or the length of time which is likely to elapse before that occurs.

As family lawyers, we are not qualified to provide you with taxation advice. We are, however, required to understand the potential tax consequences of property settlements as taxation issues often arise during property settlements which should cause you to also seek input from your accountant before finalising a settlement.

In summary, it is extremely important that you have a specialised family lawyer who can identify these taxation issues and work with you and your accountant to achieve you the most tax effective and beneficial outcome for you from your property settlement.