Navigating tax laws can feel overwhelming, especially during emotionally charged times like a relationship breakdown. At EndureGo Tax, based in Inner West Sydney, Ashfield, we provide expert guidance to help you manage these challenges. We focus on critical areas such as handling Capital Gains Tax (CGT) during divorce settlements, particularly when the relationship breakdown rollover applies.
Relationship Breakdown Rollover
When couples separate or divorce, the transfer of assets between them may qualify for the relationship breakdown rollover if they use a qualifying agreement. This rollover defers CGT, which typically applies when ownership of an asset changes. Instead, the recipient pays CGT when they later sell the asset.
The rollover only applies if the asset transfer occurs under a court order or another formal agreement.
Qualifying Agreements
The rollover applies when assets transfer (or other CGT events occur) under the following circumstances:
- A court order under the Family Law Act 1975 or a state, territory, or foreign law about relationship breakdowns.
- A consent order under the Family Law Act 1975 or a similar foreign law.
- An arbitration award under the Family Law Act 1975 (section 13H) or a similar state, territory, or foreign law award.
- A binding financial agreement under the Family Law Act 1975 (sections 90G and 90UJ) or a similar foreign law.
- A written agreement that is binding under a state, territory, or foreign law, preventing courts from making conflicting orders.
Private or Informal Agreements
The rollover does not apply when couples divide assets through private or informal agreements. In these cases, if you transfer an asset, you must report any capital gain or loss in your tax return for that year. If you receive an asset, tax laws treat you as if you acquired it at the time of the transfer.
CGT Events the Rollover Covers
The rollover applies to the following CGT events:
- You transfer ownership of an asset to your spouse (CGT event A1).
- You pass the right to use a CGT asset to your spouse, and the title transfers when the agreement ends (CGT event B1).
- You create a contractual or other right in favor of your spouse (CGT event D1).
- You grant, renew, or extend an option to your spouse (CGT event D2).
- You own a prospecting or mining entitlement and grant your spouse the right to receive income from it (CGT event D3).
- You grant, renew, or extend a lease to your spouse (CGT event F1).
The rollover does not apply to trading stock transfers.
Timing of the CGT Event
The timing of the CGT event depends on how the asset transfers. If the transfer happens under a contract, the CGT event occurs when both parties sign the contract. Without a contract, the CGT event occurs when the asset changes ownership. A separation declaration under section 90DA of the Family Law Act 1975 must take effect before a binding financial agreement can apply. Transfers from a court order or arbitration award occur when the asset transfers, not at the time of the agreement.
At EndureGo Tax, we help you navigate the emotional and financial complexities of relationship breakdowns, including Capital Gains Tax During Divorce Settlements. Our experienced accountants in Ashfield will guide you through the tax implications and ensure you make informed decisions. Contact us today for personalized support tailored to your unique situation.
