One important decision to be made as a consequence of the breakdown of a relationship, is how to divide your assets with your former partner or spouse. Often the division of assets results in transactions that can cause a tax liability to crystallise. One such tax liability is Capital Gains Tax or CGT.
Capital Gains Tax is a tax that is normally payable on the capital proceeds of the sale and the cost base of a CGT asset. The cost base of an asset includes costs such as the original purchase costs and sale costs.
Many people are aware that real property or real estate can be subject to CGT. However, real property is not the only asset class that can attract CGT, other tangible CGT assets include shares and units, crypto assets, art or collectables costing more than $500 and certain personal use assets, such as boats, costing more than $10,000. Intangible assets can also be CGT assets and include, for example, leases, goodwill of a business and licences.
The sale or transfer of a real property is a transaction that routinely forms part of a property settlement. Your main residence is generally exempt from CGT; however, there are exceptions, including for example, if you have rented out part of the property, you use it for business purposes, or it is on more than 2 hectares of land.
The sale of a CGT asset as part of a property settlement can cause a CGT liability to crystallise immediately. Absent an order or provision altering the apportionment of a CGT liability, the liability will ordinarily be borne by the legal owner of the CGT asset at the time of its sale.
The transfer of a CGT asset under a Court Order or Financial Agreement can be subject to roll over relief. If rollover relief applies, there will be no immediate implications for the person receiving the asset. However, it is highly likely that a CGT liability will crystallise upon the eventual sale of the CGT asset by the receiving party.
When contemplating the division of property where the asset pool includes CGT assets, it is important to consider factors including the quantum of the contingent CGT liability, the likelihood and/or anticipated timeframe for the sale of the asset, how the asset is held and any applicable discounts.
The application of CGT in a property settlement can be complex and will depend on the facts and applicable circumstances. This blog post is not an exhaustive account of the circumstances in which CGT can apply. To avoid any unwanted surprises when completing your financial settlement, it is important to obtain professional advice early in the settlement process.
In many cases, it will be important to seek advice not only from a family lawyer but also from an accountant to assist you to navigate the complexities of your financial settlement and potential taxation implications arising from the transactions connected to your financial settlement.
Written by
Matthew Fieldus
Family Law Solicitor
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