The effect of the roll-over relief is that the normal CGT rules don't apply in relation to the disposal, so there are no CGT consequences to the transferor. The transferee acquires the asset with the same CGT nature which it had in the hands of the transferor. https://www.westcourt.com.au

1. CGT roll-over relief on marriage
breakdown
Craig Seddon & Amrat Karsan
21 June 2017

2. Introduction
 Capital gains tax (CGT) applies to all changes in ownership of assets
after 20 September 1985.
 Property purchased before 19 September 1985 is CGT free. It retains
the exempt status in the hands of the other spouse if rollover satisfied.
 If an asset is transferred as a result of marriage breakdown there is an
automatic rollover if certain conditions are met

3. Conditions for rollover to be available
 A CGT event must happen because of the below for the rollover to be
applied;
 court order under the Family Law Act 1975
 binding financial agreement
 a maintenance agreement approved by court order
 a court order under a state or territory relating to de facto
breakdown
Applied automatically if the above is met.

4. Consequences of rollover
 Asset deemed to have been acquired at date of transfer from spouse,
company or trust.
 The spouse taking the asset acquires the cost base the other spouse
had and pays CGT when the asset is eventually disposed.
 The spouse disposing of the asset disregards the gain or loss that
would have arisen.
 No stamp duty payable.

5. Consequences if no rollover
 If assets are transferred under a private or informal arrangement it
doesn’t apply
 Any capital gain or capital loss you make on the transfer of the asset
must be accounted for in working out your net capital gain (or net capital
losses carried forward to future income years) on your tax return for that
year.
 The spouse to whom the asset is transferred is taken to have acquired
the asset at the time of transfer, even if it was purchased before
20 Sept 1985.
 Stamp duty payable at time of transfer.

6. Example
 Laurie and Jennie separated after four years.
 To avoid legal costs, they decided that they would divide their assets without involving solicitors.
 They occupied a townhouse owned by Laurie. As part of their informal arrangement, they
decided Laurie would keep it. They owned separate household items and decided each of them
would keep whatever they had bought.
 They also agreed that Laurie would transfer his half share of their rental property to Jennie in
return for $6,000. Under the arrangement, Jennie would also become liable for the whole of the
mortgage after the date of transfer.
 Jennie is taken to have paid the market value of Laurie’s share of the rental property. (The
$6,000 she actually paid and the mortgage liability she assumed from Laurie are ignored.) This
is because:
 CGT rollover did not apply (as the transfer did not happen because of a court order or a
relevant agreement or award)
 Jennie and Laurie did not deal with each other at arm’s length in connection with the transfer.
 Laurie is taken to have received the market value of his share of the rental property at the time
it was transferred to Jennie. This means, in working out his net capital gain for the year he
transferred the property to Jennie, he takes into account a capital gain or capital loss based on
the market value of his half share at that time.

7. Main residence exemption
 CGT is disregarded if you are an individual, and the dwelling was your
main residence through out your ownership period
 Partial exemption available if not main residence for the full period of
ownership

8. Disadvantages of roll over
 The spouse transferring the asset has unused losses that cant be used.
 If asset was purchased at a very low cost base and the receiving spouse
acquires the cost base and later sells the asset at a higher cost.
 Assets split by the court unfairly.
 Cash flow issues especially if equity is tied up in the business.
Assets can be split before formal settlement to avoid automatic rollover
relief.
Important to have a binding financial agreement in place to avoid this.

9. Superannuation
 Two types of super;
 - APRA regulated fund
 - Self managed super fund
 Assets transferred from one SMSF to another is not subject to CGT if
ordered by Family court.
 Balance transfers in industry funds are not taxable
 Original cost base becomes the new cost base in the new fund.
 Complex area – use SMSF specialist to structure correctly to minimise
tax.

10. How is Super split
 Agreement – split as per a financial agreement ( before , during or after
marriage)
 Court order – family court makes the decision
 Deferred – benefits are flagged and dealt with when the flagging order
is lifted by court order or agreement

11. Exempt Assets
 Pre CGT assets
 Personal use items costing less than $10,000
 Collectables of less than $500
 Your car
 Depreciation assets and trading stock
 Compensations from injuries

12. Trusts
 Income owned but not physically paid out is know as unpaid present
entitlement ( UPE)
 Spouse can assign their right to payment to other spouse.
 Trust deeds to be amended on separation.

13. Take home message
 The often quoted phase “what’s mine is yours, and what’s yours is
mine” may be true in a relationship. However, when it comes to
transferring assets between partners, the tax law does not recognise
such romantic notions.
 Couples should consider seeking advice on tax implications before
deciding to transfer assets

14. How do we Help
 Same credible advice
 Same friendly people
 SMSF in house advisor
 Making family owned business’s great

15. The material and opinions presented should not be used or treated as
professional advice and persons should make their own enquiries in making
any decisions concerning their circumstances.
Westcourt Family Business Accountants expressly disclaims any
responsibility for any damage incurred as a result of any person relying on
this information.

16. Craig Seddon
Director
• craig.seddon@westcourt.com.au
• (08) 9221 8811
• 0414 424 969
Amrat Karsan
Senior Accountant
• amrat.karsan@westcourt.com.au
• (08) 9221 8811
• 0415 905 925

17. Questions?