Question:
I note the rollover provisions relating to the transfer of an asset under relationship breakdown, i.e., the party receiving the asset is liable for CGT if/when eventually sold. The cost base being that of the other party.
However, what is the situation when under the “divorce” agreement, the property recipient pays an agreed price for the 1/2 share of the jointly owned rental property. I.e…is the party disposing of the property liable for CGT on “sale” of 1/2 share of the property?
example:
- Rental property cost $305,000; half share $157,000
- Agreed settlement amount $315,000
- net gain $158,000
- The original cost base to be further adjusted for Div43 deductions claimed
Subject to div43 adjustment, is the disposing party subject to CGT on the transfer of 50% interest?
Just to confirm…in this case, although the spouse received $315k for her half interest in the rental property, she doesn’t have to declare any capital gain? This falls to the husband when /if he eventually disposed of the property…and his cost base is not increased by the $315k he paid?
Answer
If the asset is transferred under a relationship breakdown rollover. The recipient or person receiving the asset does not pay CGT until they dispose of it.
The cost base is the amount originally paid for the asset (with adjustments), which is the essence of the rollover.
The fact that there may have been a value assigned to the asset at the time of the final allocation of all distributable assets is irrelevant.
The question is:
- Was this a rollover pursuant to binding orders of the Family Court? If yes, then our advice stands?
- Did the husband and wife, separate to the family law financial settlement, have a simple sale of the wife’s interest without reference to the above?
Furthermore, (2) above means the former wife was willing to accept and disclose a CGT liability in her tax return while actually receiving $315k from the sale of her interest in the property?
This plainly has not occurred.
This is a rollover, and while the former husband would no doubt like a higher cost base, this is not possible.