An important but often overlooked aspect of family law property settlements is the tax and duty consequences of parties retaining or disposing of assets. It is essential that all parties receive financial and tax advice before finalising a property settlement to avoid nasty surprises later.

Some tax issues in family law matters are:

• Capital gains tax (CGT); and
• Stamp duty.

Capital Gains Tax (CGT)

CGT is payable on the net capital gain made on the sale, transfer or disposal of property. This includes real estate (other than the family home), shares, leases and different types of rights.

Generally, the following is exempt from CGT:

• Assets acquired before 20 September 1985;
• Collectables less than $500;
• Some personal assets less than $10,000;
• Cars and motor vehicles;
• Sale of a small business or business asset;
• Assets used to produce income; and
• The parties’ main residence.

CGT and the family home

If you keep the main residence (or family home) selling it later, the sale is exempt from CGT on the profits.

CGT and investment properties

If, as part of a family law property settlement ownership of a jointly owned investment property former partner transfers his share to you, the transfer is not subject to CGT. You must have a Financial Agreement under the Family Law Act 1975 or Court Orders to obtain marriage or de-facto relationship “rollover relief”. If you later sell the investment property, you will have to pay CGT on any profit.

Rollover relief on assets from a company or trust

Rollover relief can also apply to assets transferred from a company or trust to a party of the marriage or relationship. But be wary of Division 7A of the Income Tax Assessment Act 1936 (ITAA) [see below].

Calculating CGT obligations

If and how much CGT you will have to pay or how much loss you may incur is a question for your accountant or tax lawyer.

The Family Law courts can take future CGT liabilities or losses into account if certain factors are present. For example, how the asset was acquired, the intentions of the parties at that time, and whether the asset sale is inevitable or part of a Court Order, may all be considered.

Stamp (transfer) duty

Generally, properties and motor vehicles in New South Wales are not subject to stamp duty if the transfer from one party to the other is pursuant to Court Orders or a Financial Agreement under the Family Law Act 1975.

However, where a private company, owned by one party, transfers, say, a car owned by the company to the other party, the transferee must pay stamp duty.

Here to Help

Contact us for referral to a trusted local accountant if you are unsure of the tax consequences on a property settlement of a proposed transfer.