Is future Capital Gains Tax considered in family law matters?

For those with investments such as shares, investment properties or other assets that you buy for one price and sell for another price, when you go to sell such investments, the difference between the amount you purchased it for and the amount you sell it for is either a “capital gain” or a “capital loss”.

 

In family law matters, when couples have investments, in particular investment properties, the question often arises ‘does the capital gains tax I will need to pay in future when I sell the property get taken into consideration in the financial settlement?’ The answer to this is ‘it depends’. Whilst there is no hard and fast rule, the leading authority of Rosati and Rosati [1998] FamCA 38 provides some guidance as follows:

 

Generally allowance is made for capital gains tax if:

1. The investment property is ordered or agreed to be sold by the parties as part of the family law settlement;
2. The Court is satisfied that a sale of the investment property is inevitable or would probably occur in the near future;
3. The property was one that was acquired solely as an investment and with the intention of selling for a profit.

 

In practice what this means is that:

 

1. If you and your spouse/partner are selling an investment asset as part of your financial settlement, then Capital Gains Tax will be payable to the Australian Taxation Office and it needs to be factored into your settlement;
2. If you are transferring an investment to your spouse, or if you are the one retaining it, the Capital Gain or loss transfers to the new owner and it will only be taken into account if the Gain or loss is going to be realised very soon after the time of settlement.

 

Each case is different and if you have investments including properties that form part of your family law matter, don’t hesitate to get in contact with us, and one of our experienced family lawyers can provide you with comprehensive advice. Contact us via phone (03) 9279 6800 or email at theteam@umbrellafamilylaw.com.au.