Capital Gains Tax Implications for Property Division

12/05/2016

In all cases where there is property careful consideration must be given to what are the tax implications of any agreed settlement or the structure of the Order of the Court in a disputed matter. 

The experienced Solicitors at Watson and Watson have it foremost in their mind as to the tax consequences and possible tax concessions available in dealing with the issues that arise where spouse partners or husband and wife separate and as a consequence separate their financial associations including:

What asset is subject to Capital Gains Tax?

A Capital Gains Tax may be payable in relation to a disposition of property or a legal or equitable interest in an asset.  This includes assets not just what most people understand is to be property.

The Capital Gains Tax Legislation provides for assets and transactions that are excluded from the payment of Capital Gains Tax including:

  • Certain motor vehicles.
  • Trading stock
  • Disposal of interests in life insurance policy.
  • Certain superannuation and approved deposit funds.
  • Superannuation Agreements under the Family Law Act.

There are certain transactions which if by way of transactions appropriately approved in Family Law proceedings are exempt from Capital Gains Tax and other tax including Stamp Duty.

A significant issue that can arise and must always be considered in property division in Family Law  (and is sometimes overlooked) is the potential obligation to pay Capital Gains Tax (CGT) and other taxes. 

If the Tax implication of the structure of a property settlement is ignored or forgotten the  outcome might not be what the parties intended and the liabilities if assumed by one party or alone might result in an outcome that is not fair.  Once the deal is done it may not be possible to change the tax consequences of the property division.

CGT may well be payable or become payable on assets falling within the pool of assets available for distribution.  It is essential to understand how Capital Gains Tax works and what concessions may be available in Family Law property matters.

Capital Gains Tax potentially applies to an event that affects a Capital Gains Tax asset (including a disposal of an asset) that was acquired after 19 September 1985.  Assets that are available for division and which were acquired after 1985 will most likely be subject to payment of Capital Gains Tax unless there is an available exemption.  There are partial Capital Gains Tax events that generate a capital gain or capital loss even if the asset affected otherwise is a free GST asset.

There are various exclusions, exemptions and concessions which effect the operation of the tax.  If the occurrence of a Capital Gains Tax event gives rise to a capital gain and where the amount of the capital gain exceeds the amount assessable under non Capital Gains Tax provisions then the excess is a capital gain and tax will be payable. 

Why is it important to consider CGT in property settlements?

It is essential to understand the final result in a property settlement and the consequences of the transfer of assets may mean that one spouse or an associated entity has to accept the obligation to pay the CGT or other tax contributable to that asset and accordingly the result may be different to that what was expected.

There may be Tax consequences in relation to changes that may occur in relation to properties, trusts, corporate structures and partnerships all of which have the potential to have tax consequences.

Watson and Watson understand these issues and can advise as to the consequences of any proposed settlement or course that a party wishes to adopt. 

Not all matters are simple and Watson an Watson often engage very experienced specialist tax experts (who are available on an economical basis) to assist in these aspects of the matter.  Such advice by the specialist is a cost effective use of resources to obtain the best outcome in complicated and complex matters dealing with many matters of different nature and the consequence thereof.

If you have any concerns please contact Richard Watson or his Personal Assistant to arrange a discussion in relation to the matters and how we can assist in these difficult matters consequent upon the breakdown of a relationship.

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