Capital Gains Tax Rollover Relief: A benefit for some, a potential liability for others!

An important consideration in a family law property settlement is Capital Gains Tax (“CGT”).

CGT rollover relief provides that after separation, a spouse who transfers an asset (which would normally trigger CGT being payable at the time of the transfer or sale) to their former spouse is not required to pay CGT.

CGT rollover relief is generally available if after separation:

1. you transfer an asset or a share of an asset to your spouse, or
2. you receive an asset or a share of an asset from your spouse, or
3. a company or trustee of a trust transfers an asset to you or your spouse.

It is very important to note however that the spouse who receives the asset will be responsible for the payment of all of the CGT when they subsequently sell or transfer the asset (this includes the CGT which accrued while the parties where still in a relationship).

If you are the spouse receiving the asset, the cost base of the asset for CGT purposes (the cost of the asset when you acquired the asset) is transferred to you.

Roll-over is also available for transfers of any CGT asset for the personal interest of either spouse (but not both) in a small superannuation fund (i.e. a fund with fewer than five members) to another complying superannuation fund.

Using the roll-over relief can yield significant CGT advantages.

If the conditions for roll-over relief are met, the relief applies automatically, i.e. the parties do not have to choose that it apply (Taxation Determination TD 1999/60). If a property order is made by a Court, any changes in ownership of property that occur as a result of the order will be subject to the CGT roll-over relief.

A disposal of an asset by a company or trust which would qualify for CGT roll-over relief may also have ordinary income tax implications which must be taken into account.

The taxation implications of a proposed property arrangement must be considered as it can often significantly alter the fairness of a property settlement. If the taxation implication of an agreement is overlooked this can cause significant financial difficulties both at the time the agreement is made and/or later when an asset is sold or transferred.

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 seek input from your accountant before finalising a settlement. 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.