Issue
Will marriage breakdown roll-over under Subdivision 126-A of the Income Tax Assessment Act 1997 (ITAA 1997) apply if a CGT asset is transferred to the legal personal representative (LPR) of a deceased former spouse of another individual pursuant to a consent order made under the Family Law Act 1975 ?
Decision
No. The transfer of a CGT asset to the LPR will not satisfy the conditions for roll-over under Subdivision 126-A of the ITAA 1997.
Facts
Property settlement proceedings were commenced in the Family Court of Australia following the breakdown of a marriage.
A former spouse died before completion of the court proceedings and their LPR was substituted as a party to the proceedings.
Pursuant to a consent order made under the Family Law Act 1975 , it is proposed that the trustee of a discretionary trust will transfer an asset, which the trustee acquired before 20 September 1985, to the LPR.
Reasons for Decision
A CGT roll-over applies in respect of certain CGT events (trigger events) that happen as the result of the breakdown of a marriage (Subdivision 126-A of the ITAA 1997).
Paragraph 126-15(1)(a) of the ITAA 1997 provides that there are the roll-over consequences in section 126-5 of the ITAA 1997 if the trigger event 'involves' a trustee and a spouse or former spouse of an individual because of a court order under the Family Law Act 1975.
Subsection 126-15(1) of the ITAA 1997 is a rewrite of subsection 160ZZMA(1) of the Income Tax Assessment Act 1936 (ITAA 1936). Under section 160ZZMA of the ITAA 1936, roll-over was available if an asset was transferred from a trustee to a spouse or former spouse.
Chapter 2.17 of the Explanatory Memorandum to the Tax Law Improvement Bill (No 1) 1998 indicates that the change of wording from 'to' to 'involves' was not intended to affect the scope of the roll-over. Accordingly, having regard to section 1-3 of the ITAA 1997, the issue is merely whether a reference to a spouse or former spouse includes that person's LPR.
The Board of Review in Case C84 71 ATC 378; (1971) 17 CTBR (NS) Case 81 concluded that on a proper construction of the provision under consideration in that case (paragraph 87(1)(c) of the ITAA 1936), a payment to an executor (who is an LPR of a deceased individual) was not to be treated as if it had been made to the deceased individual. Similarly, it is considered that in the context of the marriage breakdown roll-over, 'spouse' should not be read as including an LPR.
Having regard to section 1-3 of the ITAA 1997, the idea expressed in section 160ZZMA of the ITAA 1936, that the disposal of an asset will only be subject to the roll-over if it is to the former spouse (or spouse), is not to be taken to be different just because different forms f words were used in the 1997 rewrite.
As the relevant asset will be transferred to the LPR, and not to the requisite spouse or former spouse, it follows that Subdivision 126-A of the ITAA 1997 will not apply to the transfer.