Considering CGT implications in Family Law Property Settlements

By 8 June 2018Family Law
Family Law Property Settlements

For many people a property settlement will require careful consideration of their future asset structuring and protection.

Pre-2017 it was accepted that relevant to family law matters, capital gains rollover relief was only available where the asset being transferred, whether such asset was held by the parties (solely or jointly), trust or company, was transferred to the other spouse personally.  This meant that there was no flexibility of separating parties to transfer assets from individuals or entities to another entity whilst still benefiting from the CGT rollover relief provisions.  This effectively left the receiving spouse, in many circumstances, unable to adequately structure and protect their assets moving forward after separation, in a cost effective manner.

The 2017 first instance decision of Sandini Pty Ltd and Commissioner of Taxation [2017] FCA 287 saw the possibility of the CGT rollover relief provisions being expanded.  The effect of the decision was that family law orders could be drafted in such a way that the application of the rollover relief was still applicable even if the implementation of the Order saw assets being transferred by the parties (solely or jointly), trust or company to a trust or company of the other spouse.   Unsurprisingly given the effect of the first instance decision, it was appealed to the Full Court of the Federal Court of Australia.

Ellison v Sandini Pty Ltd [2018] FCAFC 44 was handed down in March 2018 and by a majority of two judges to one, the appeal of the Commissioner of Taxation and Mrs Ellison was allowed.  The effect of the 2018 decision is to reinstate the position as it was understood pre-2017.  This means, parties in family law matters are limited, in circumstances where retaining the benefit of the CGT rollover relief provisions is a relevant cost consideration, to providing for the transfer of assets however held by the parties to the marriage, to the receiving spouse personally.

For anybody in the position of needing to end their financial relationship with their former spouse or partner, both the first instance decision and subsequent appeal, highlight the absolute necessity of considered, careful and accurate drafting of property orders.  Without specialist advice from experienced family lawyers, parties can unwittingly become liable for unexpected tax consequences as a result of ill-considered or poorly drafted family law orders.  At Murdoch lawyers we are supported by a team of lawyers specialising in other areas of law including taxation and asset protection, together with having close working relationships with accountants and financial planners.  As a team we can ensure that any property settlement of the parties is drafted appropriately and able to be implemented in a cost effective and well considered manner.

An update from the Victorian Bar Association in May 2018 stated that a special leave application had been made to the High Court in respect of the Full Court of the Federal Court decision referred to in this article.  Further updates to this article will be made as they become available. 

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