Capital Gains Tax and Family Law Property Settlements
Posted on 1 August 2023
Jaqueline Scriven
Capital Gains Tax and Family law property Settlements
When faced with a relationship breakdown, tax issues might be the last thing on your mind, however, Capital Gains Tax can impact the value of a family law property settlement.
Capital Gains Tax is the tax payable on the profit that is made when selling, transferring or disposing of certain assets acquired after 20 September 1985. There are general rules about what property is exempt from Capital Gains Tax, such as your principal place of residence. Examples of assets that may incur Capital Gains Tax are investment properties and shares.
Where you incur a capital gain, you are required to report this as part of your income tax. Accordingly, even though Capital Gains Tax is assessed separately, it forms part of your income tax for the financial year in which the asset was sold.
When a relationship comes to an end, assets from the relationship are often sold or transferred between two spouses. Capital gains tax rollover relief may apply, meaning that if an asset is being transferred between two spouses and that transfer would normally attract a capital gains assessment, if the transfer is made pursuant to family law property settlement (Consent Order or Binding Financial Agreement), there is no Capital Gains Tax payable at that time. The tax obligation will be rolled over to the party to whom the asset is transferred who will then have to pay Capital Gains Tax if they eventually sell or dispose of the asset.
So, which party to the relationship is responsible for paying Capital Gains Tax? Well, it depends! You need to ensure your lawyer is providing you with complete advice and flagging with you the potential for a capital gains liability if you take on an investment property and/or shares as part of your property settlement with your ex-spouse.
In the event a family law property settlement proceeds to court, some things a court might consider are:
- Whether Capital Gains Tax should be taken into consideration when determining the value of an asset.
- Whether the court orders the sale of an asset, or it is satisfied the asset will be sold in the near future; the court may consider this a ‘future needs’ factor given the liability will be crystalised in the future.
- Any special circumstances where even if there is no likelihood of the sale of the asset in the near future, it may be appropriate for the court to consider Capital Gains Tax liability.
HOW CAN OMNIA LEGAL ASSIST YOU?
The law in this area is complex. We are confident we can assist you in your family law property settlement matter and work alongside your tax accountant to ensure you are getting wholistic advice. Get in touch to schedule your complimentary phone consult with one of our family lawyers.
If you would like to schedule an obligation-free complimentary phone consultation to talk through your option, call (07) 5415 0248 or email info@omnialegal.com.au.
This article provides general information on legal topics for educational purposes only, and should not be considered legal advice or recommendations. While we have taken care to ensure accuracy, Omnia Legal is not responsible for any errors, and makes no guarantees about the accuracy or completeness of the information. Links to third-party websites do not constitute an endorsement, and we are not liable for any damages that may result from using inaccurate or incomplete information. It's always best to seek legal advice for specific situations.