Capital Gains Tax and property settlements

A common question from clients is if they will have to pay tax if assets are transferred to or from their former spouse.  

In this blog, we will look at the Capital Gains Tax (CGT) roll over that is available for assets that are transferred through Orders under the Family Law Act 1975 

What is Capital Gains Tax 

Capital Gains Tax is the tax that applies if you make a profit on the sale of an asset such as property or shares. It is not a separate tax, rather any capital gains or capital losses are included in your income tax return for the year in which you make the gain or loss.  

Capital Gains Tax implications of a marriage breakdown 

Under Section 126.5 of the Income Tax Assessment Act 1997, there is a roll over available if a CGT event happens involving an individual and their spouse or former spouse under a qualifying agreement such as a Court order under the Family Law Act 1975 or a maintenance agreement approved by a Court under section 87 of the Family Law Act 1975. The rollover defers any CGT that may apply until the property is disposed of by the person who received the asset under qualifying agreement.  

Importantly. the consequence of this rollover for the person who is transferring their interest in an asset to their former spouse is that any capital gain or capital loss on that transfer is disregarded.  

If CGT assets are transferred under a qualifying agreement, the person who is acquiring the asset is taken to have acquired the asset on the original purchase date of the asset and the original purchase price of the asset.  

If an asset is exempt from CGT because it was purchased prior to 20 September 1985, it is still taken to have been acquired before 20 September 1985 and is therefore still exempt from CGT. 

If an asset is sold and the proceeds of sale are then transferred to your former spouse, CGT will apply to this sale as the asset was not transferred to the former spouse. 

It is important to note that there is no rollover or exemption available for the transfer of trading stock. 

It is recommended that you always seek advice from your accountant or financial advisor before entering into any agreements involving the transfer of property. 

Please note: the information in this article is general in nature and is not legal advice, financial advice or taxation advice. For specific advice about your legal circumstances, contact us to make an appointment with one of our solicitors. We cannot and do not provide financial or taxation advice.