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Capital Gains Tax relief for family transactions

Often when a relationship is ends, finances and asset holdings need to be addressed and restructured.

As part of this process, certain assets or property may need to be transferred from one spouse to the other.  It is for this reason, capital gains tax may become a relevant issue.

Capital gains tax is avoided in certain circumstances - one of these, is where a “rollover” applies.  A rollover will apply where one spouse transfers an asset, or his or her interest in the asset, to the other spouse.

This may be the case where an investment property held in the name of both spouse parties, is being transferred into the name of one of the parties only after the end of the relationship.

Previously, in order to claim the CGT rollover relief, the property must have been transferred pursuant to a Court Order.

But amendments to the Family Law Act in 2006 extend Capital Gain Tax relief to those transfers made pursuant to:-

  • a Binding Financial Agreement; or
  • other acceptable agreement*.

The rationale behind the exemption is that Capital Gains Tax will be dealt with by the person receiving the benefit of the transfer, at such later time as he or she disposes of the property.

The Capital Gains Tax rollover also extends to de facto and same sex couples.

In what circumstances won’t the rollover apply?

The rollover will not apply to any private or informal arrangements, ie, those arrangements not finalised by way of a Court Order, Binding Financial Agreement or other specified formal agreement.

If this is the case, any capital gain or loss will continue to apply to the transferring party.

*For more information, visit this ATO website

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