With many marriages and de facto relationships ending in separation, the capital gains tax (CGT) roll-over rules for relationship breakdowns have become more important. These rules allow the transfer of assets between separating partners without triggering an immediate CGT liability. However, there are important conditions and rules that apply to different types of assets.
One of the main conditions is that the asset transfer must be done through certain legal methods, such as a court order or a financial or maintenance agreement. Here’s a key planning tip: if one party wants to claim a capital loss on an asset they’re transferring, they should avoid using these formal methods and instead agree privately with the other party.
Another key rule is that the CGT roll-over only applies if the asset is transferred directly to the other spouse. It can’t be transferred to their discretionary trust, private company, or even their estate if they pass away during the separation process. The only exception is if it goes to a “child maintenance trust,” and strict conditions apply in that case.
Also, not all assets qualify for the CGT roll-over. For example, trading stock is excluded and will follow the usual tax rules for such assets. If the roll-over applies, it doesn’t mean CGT is avoided—it’s just delayed until the spouse who received the asset sells it or a CGT event occurs. They will usually take over the original cost base for the asset and may be eligible for the CGT 50% discount if they hold it long enough.
One tricky rule applies to dwellings, such as a rental property, if the spouse who receives it later uses it as their home. In this case, they would still have to pay CGT on the gain from when it was a rental, even if it became their home later on. This requires careful planning to ensure fairness for both parties.
There are also specific rules for assets held by family companies or trusts that are transferred during a settlement. These situations can be complex, and professional advice is recommended to manage the tax issues effectively.
In conclusion, it’s essential to seek advice when dealing with asset transfers during separation to ensure the CGT roll-over is used wisely,
as it can provide significant tax planning opportunities during such a difficult time.
Tommy Li, CA
Director, Verity Advisory | Registered Tax Agent | Authorised Financial Adviser (ASIC Rep No. 1261831) | Member, Chartered Accountants Australia & New Zealand
Tommy is a Chartered Accountant with 20+ years advising medical professionals on tax, financial structure and practice ownership decisions. He founded Verity Advisory to provide integrated advice for doctors at career-defining financial inflection points — combining tax, lending and financial planning into a single structured approach.
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