As detailed in our previous article, the consequences of Capital Gains Tax (CGT) can be significant. As the interaction of CGT and family law settlements can be complex, the following issues should be considered in detail.
NOTE: any CGT asset acquired before 20 September 1985 will automatically be exempt.
The Family Home
Where the marriage has broken down irretrievably, ownership of the family home will inevitably change.
If the family home was the “main residence’ for the whole period of the combined ownership, it will be exempt from CGT in the event of its sale or transfer. If the home was only the “main residence’ for part of the ownership period or used for the purpose of producing assessable income (e.g. rent), it will not be exempt from CGT.
In property settlement, it is common for one party to retain the family home. This is quite a favourable position to be in as there will be no tax payable on any net profit made on the sale of the home in the future.
â€œRoll Over Reliefâ€
Normally where an asset changes ownership, CGT applies. However, if an asset is transferred between spouses because of a relationship breakdown, there is usually an automatic “rollover’ of the asset. That is, CGT is automatically deferred until the spouse receiving the asset decides to sell or transfer the asset in the future.
Although this rollover may appear financial beneficial, it can present an issue of whether the tax payable on the future sale of the asset should be a cost shared by both parties.
It should be noted that the “rollover’ does not apply in every situation. Contact our office to see if you’re eligible for the roll over relief.
Shareholdings are subject to the “Roll Over Reliefâ€.
If the car is designed to carry less than 1 tonne and fewer than 9 passengers, it is an asset exempt from CGT.
Where a collectable was acquired for less than $500, CGT is exempt. A “decoration for valour or brave conduct’ is also exempt, unless it was purchased by the individual.
Personal-use assets (other than land and buildings) are exempt if they were acquired for less than $10,000. Personal-use assets can include:
- Electrical goods
- Household items
There are specific rules which govern the division of superannuation between spouse upon the breakdown of the relationship. Where a spouse transfers their superannuation entitlement to another spouse, CGT is disregarded. However, this transfer must be pursuant to an Order or agreement under the Family Law Act.
Generally, stamp duty is payable on transactions or transfers relating to motor vehicles and property. However, stamp duty exemptions apply in the context of family law settlements where there is a:
- Transfer of property between married couples pursuant to an order of the Family Court.
- Transfer of the shared residence or motor vehicles between spouses or former spouses or domestic partners or former domestic partners.