In the event of a divorce or a breakdown of a civil partnership, the tax implications of separation may bring a further set of problems to what is often an already distressing and economically uncertain time.
Asset transfers may give rise to tax issues which exacerbate the whole ordeal and spouses and entities related to the spouses could find themselves facing unintended and unexpected costs.
As a general rule, capital gains tax (“CGT”) applies to all changes of ownership of assets on or after 20 September 1985. Examples of CGT assets include motor vehicles, valuables (jewellery, artworks, antique furniture etc), shares, investment properties, superannuation interests and rights or income entitlements as a beneficiary of a trust.
However, many assets are exempt from CGT (such as motorcycles and vehicles that are designed to carry less than nine passengers and which have a load of less than one tonne, collectables that cost less than $500.00 and the main place of residence). If the marriage or relationship ended on or after 20 September 1985 and an asset is transferred to a spouse as a result of the breakdown, CGT exemptions and automatic rollover relief will apply in some cases.
Rollover relief applies in the following situations:
- When an asset or a share of an asset is transferred to a spouse
- When an asset or a share of an asset is received from a spouse
- When a company or trustee of a trust transfers an asset to either party
Rollover relief ensures that in a property settlement agreement there are no CGT implications for the person disposing of an asset. The person who receives the asset (the transferee spouse) takes over all of the CGT history related to the asset and will make the capital gain or capital loss when they subsequently dispose of the asset.
People can’t choose whether or not to apply the automatic rollover relief and for the rollover/exemption to apply, the asset transfer must be legally compliant.
There are situations where people would prefer to deal with a GCT tax liability rather than seeking rollover relief and it is recommended that anyone who is experiencing a relationship breakdown should get advice from legal and tax experts to determine their eligibility for any exemptions and rollover relief.
The transference of property interests between parties also attracts transfer duty obligations where transfer duty must be paid before the change of ownership can occur. Transfer of property pursuant to Family Court orders however attract a nominal transfer duty.
If you need expert help in navigating the legal and accounting implications of your relationship breakdown as smoothly and cost-effectively as possible, you should get in touch with the highly respected family law team at Friedman Lurie Singh & D’Angelo on 08 9254 0000 or via their website, www.flsd.com.au. They have an established reputation as a leading law firm in Perth and have five conveniently located offices serviced by a dedicated team of some of the best legal minds in the country.