The transfer from one party to the other party of the interest of that party in the former matrimonial home, pursuant to an order of the Family Court or a Family Law settlement, in the past, had been exempt from Capital Gains Tax (CGT).
Since the passing of the Act, in December 2006, that may not always be the case. The Act now takes into account, the way in which the parties had previously treated the residence in determining, whether or not the transfer attracts CGT.
The ATO will now apply the "main residence test."
For example, under the Act, where the main residence was owned by the husband (or owned by the parties jointly) but after separation was occupied by the husband as his main residence, then a transfer of that property to the wife would attract CGT.
The Act gives the parties the opportunity to deem a specific residence to be their main residence irrespective of whether the property was used as their main residence.
Parties are required to make a declaration in relation thereto when filing tax returns.
Orders transferring an interest in real estate from one of the parties to the other must be carefully drawn to comply with the requirements of the Act and so as not to unnecessarily incur a CGT liability.
CGT still applies to other transactions, such as the transfer of an interest in an investment property, from one spouse to the other. Note that CGT rollover provisions can be relied upon in respect of this transaction.
Swaab was recently named winner 'Best Law Firm in Australia (Revenue < $20m)' at the 2007 BRW-St George Client Choice Awards.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
