Talking capital gains tax in marriage separation
gains tax issues that arise as a result of a marriage separation.
The current capital gains tax legislation does allow you to disregard a capital gain for a property transferred between spouses as part of a marriage separation agreement.
But for the spouse acquiring the property, they will also inherit their spouse’s cost base and their previous use. This means that they could be inheriting a significant capital gains tax liability when they eventually sell the property.
For example, Jenny acquires a property from her ex-spouse ( Barry) who had used the property the whole time as a rental property, and Jenny now uses the property as her main residence. When Jenny sells, she would be able to use Barry’s cost base for calculating the capital gain.
Also, the use of the property as a rental property will need to be taken into account to reduce her main residence exemption.
Of course it also works the other way. If Barry had used the property as his main residence the whole time before their marriage, then it could mean that Jenny inherits Barry’s main residence exemption.
Finally, should the transfer of the property under the separation agreement have occurred before September 20, 2006, then you only need to take into account your use since you acquired the property under the agreement. So applying this to the earlier example, Jenny could claim the main residence exemption regardless of what Barry used it for.
This advice is general in nature and readers should seek specialist advice before making decisions. WHK Pty Ltd ABN 84 006 466 351
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