Capital Gains Tax Liabilities in Family Law

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How much can a koala bear?


The breakdown of a relationship, whether marriage or de facto, can be a stressful and complex time with myriad considerations and pressures.


At some stage in the timeline of that process there will be arrangements for property settlement proceedings. This may be in the form of a private and mutually agreed arrangement, or because of a Court Order or Binding Financial Agreement. As will be seen later, while the former private arrangement may be seen as a good outcome, it may in fact have unexpected consequences.


Divisions of property will usually involve such things as:

  • Family home
  • Superannuation
  • Investment property
  • Shares or other similar investments
  • Individual items such as cars, boats, artworks, and other items of value


The division of such a range of property and assets can be complex enough, but there can be a further complication in the form of CGT (Capital Gains Tax).


September 20, 1985


It was on this day that Disney World welcomed its 200-millionth guest, a piece of trivia not widely known perhaps. It was also the day when Capital Gains Tax became active in Australia, with relevant assets purchased after this date attracting CGT upon their eventual sale. This could also be a loss, in the event the item was sold for less than its purchase price.


As expected, there is a great deal more detail to this. A significant feature is that it is possible to only be liable for 50% of the tax where the asset is held for more than 12 months.


There are exceptions of course: an important one being the family home. Other exceptions are personal items purchased for less than $10,000, artworks purchased for less than $500, and motor vehicles.


Rollover Relief


When assets are apportioned between parties in a property settlement, it may be that some of those assets are liable for CGT.


A family home, which has been continually used as such, is exempt. The party receiving that asset will have no CGT liability, provided it continues to be used in the same manner and not turned into an investment property.


Assets such as an investment property, however, would normally be subject to CGT, with the above-mentioned considerations of 12 months of ownership and so on applied.


Where such an asset is apportioned as a result of a Court Order or Binding Financial Agreement, the CGT liability that travels along with the asset is not payable until the ultimate sale of the asset. That is, rollover relief is applied. That said, the recipient of the asset will, at some stage, still be liable for the CGT amount.


It is extremely important to note—as alluded to earlier—that if the property settlement is done by a private arrangement and not by Court Order, that rollover relief is not applied, and CGT is payable at the time of transfer.


Either way, should this CGT liability be taken into account when deciding upon the appropriate division of assets? The answer is complex, and is treated by the Family Law Court on a case-by-case basis. Determining factors might include: whether the sale of the asset was planned, expected, likely, or foreseeable?


There is no one-size-fits-all answer to this CGT issue. Suffice to say, sound legal advice is paramount before contemplating property settlement arrangements.


Family Law – Taxation Law – talk to us first. It will be easier with sound legal advice from the experts. Owen Hodge Lawyers. We are here to help.


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