The Australian Government intends to introduce amendments to the Income Tax Assessment Act1997 to extend the scope of the marriage breakdown capital gains tax (CGT) roll-over relief, the Minister for Revenue and Assistant Treasurer, Mal Brough, announced today. The amendments will extend the rollover to assets transferred to a spouse or former spouse under:
- a binding financial agreement under the Family Law Act 1975 or a similar agreement under a corresponding foreign law;
- an arbitral award under the Family Law Act or a corresponding award made under a corresponding state law, territory law or foreign law; and
- a written agreement under state law, territory law or foreign law relating to de facto marriage breakdowns where the agreement is similar to a binding financial agreement.
Binding financial agreements entered into under the Family Law Act allow legally married spouses to settle property issues before, during or after the marriage, and can cover some or all of the marital property. Arbitral awards entered into under the Family Law Act allow legally married spouses to settle marital property issues using arbitration. These arrangements were introduced to reduce the need for involvement of the courts in marriage breakdown settlements.
'The income tax law currently allows a CGT roll-over relief when assets are transferred to a spouse or former spouse under a court approved maintenance agreement or under a court order,' Mr Brough said.
'Extending the scope of the CGT roll-over relief for assets transferred on the breakdown of marriage will encourage separating couples to settle their own affairs so that they can avoid potential costly and protracted litigation in the court system.'
The Government will also be making two related amendments.
The first of the related amendments will ensure that the CGT main residence exemption interacts more appropriately with the marriage breakdown roll-over relief. The amendment will apply where the transferor spouse acquired the dwelling (or relevant interest in the dwelling) on or after 20September 1985 and a marriage breakdown roll-over relief is available to the transferor spouse. Unlike the present legislation, the main residence rules will take into account the way in which both the transferor and transferee spouses use the dwelling when determining the transferee spouse's eligibility for the main residence exemption.
The following examples illustrate the intended application of the amendment.
Example 1
Peter (the transferor spouse) is the 100 per cent owner of a dwelling that he uses only as a main residence before transferring it to Susan (the transferee spouse). Susan uses the dwelling only as a rental property.
Under the present law, Susan is not eligible for any main residence exemption. The amendment will mean that Susan will be eligible for a proportionate main residence exemption having regard to how both Peter and Susan used the dwelling.
Example 2
Caroline (the transferor spouse) is the 100 per cent owner of a dwelling that she uses only as a rental property before transferring it to David (the transferee spouse). David uses the dwelling only as a main residence.
Under the present law, David is eligible for a full main residence exemption. The amendment will mean that David will be eligible for only a proportionate main residence exemption having regard to how both Caroline and David used the dwelling.
The second related amendment will ensure that marriage breakdown cash settlements do not give rise to CGT liabilities.
The amendments will apply to CGT roll-overs and CGT events relating to cash settlements, taking place after the date of Royal Assent of the enabling legislation.