CGT: Rollover Relief (Disposal of Shares)

Whether Capital Gains Tax (CGT) rollover relief is available to a taxpayer under section 126-5 ( Income Tax Assessment Act 1997 (ITAA 1997)) on disposal of shares that were to be transferred to the taxpayer's spouse as part of a marriage-breakdown property settlement.

No. The taxpayer is not entitled to section 126-5 (ITAA 1997) CGT rollover relief as the shares, in accordance with that provision, are not disposed of pursuant to an order of the court.

The taxpayer and the taxpayer's spouse are awaiting court endorsement of a marriage breakdown property settlement. On negotiating the settlement, they had agreed that jointly-owned shares would be transferred to the taxpayer's spouse. Subsequently, the shares were sold to preserve their value. Consistent with the agreement, the current settlement deed states that the proceeds from the sale of the shares and any interest earned on the account will pass to the taxpayer's spouse.

Section 126-5 provides CGT rollover relief in certain instances, including, where a taxpayer disposes of an asset to their spouse pursuant to a court order. Where section 126-5 applies, the spouse is treated as acquiring the asset for its cost base (if the taxpayer acquired the asset on or after 20 September 1985) and the taxpayer disposing of the asset is not subject to CGT on the disposal of the asset.

In this case, section 126-5 cannot apply to provide rollover relief to the taxpayer as there is yet to be a court-ordered settlement. Furthermore, once the court does order a settlement, what will be disposed of is a sum of money, being the proceeds from the sale of the shares and not the actual shares themselves.

At the time of sale of the shares the taxpayer is not entitled to CGT rollover relief under section 126-5 and is, therefore, subject to tax on their share of the capital gain arising from the profit made from the sale.