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Consent Orders and Capital Gains Tax

Consent Orders and Capital Gains Tax

Consent Orders and Capital Gains tax 

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FAQs

Consent Orders and Capital Gains tax. 

The most important consequence for Consent Orders and Capital Gains Tax (CGT) when a property is transferred between two people under Australian family law Consent Orders is the application of CGT Rollover Relief.

This relief effectively defers the CGT liability from the transferring party to the receiving party.

CGT Rollover Relief is Automatic

The transfer of a CGT asset (like an investment property or a rental property) between spouses or former spouses due to the breakdown of a relationship is generally subject to an automatic CGT rollover, provided it is done pursuant to a formal Family Law order.

  • Triggering Event: The Consent Orders, which are a legally binding court order under the Family Law Act 1975, are a qualifying agreement that triggers this relief.
  • The Transferring Party (Transferor): The person who transfers their share of the property disregards any capital gain or loss that would normally arise from the transfer. They have no CGT liability at the time of the transfer.
  • The Receiving Party (Transferee): The person who receives the property inherits the original cost base of the transferring party. The latent CGT liability is essentially “rolled over” to them..

The Deferred CGT Liability

The CGT is not eliminated; it is merely postponed until the receiving party eventually sells or disposes of the asset to a third party.

  • Calculating Future CGT: When the receiving party eventually sells the property, their capital gain will be calculated using the original cost base of the property (the price and costs paid when the couple, or the original owner, first acquired the property).
  • 50% CGT Discount: The receiving party can still qualify for the 50% CGT discount if they hold the asset for a combined total of at least 12 months (including the time the former spouse owned it) before the final sale.

Main Residence Exemption

If the property transferred was the former main residence of the couple, it will usually be completely exempt from CGT for both parties, as long as it qualified for the main residence exemption during the period of joint ownership.

Capital Gains Tax and Consent Orders

The rollover provisions ensure that the transfer to the receiving spouse does not trigger CGT liability, and that spouse can generally continue treating the property as their main residence for CGT purposes.

Summary of the Rollover Effect

Party

Action

CGT Outcome

Transferor

Transfers their interest under the Consent Order.

Disregards any capital gain/loss at the time of transfer (no tax is paid).

Transferee

Receives the interest under the Consent Order.

Inherits the transferor’s original cost base and holding period. Pays CGT when they eventually sell the asset.

Important Note:

While the Consent Orders provide the CGT rollover relief, you should always seek specific advice from a qualified Family Lawyer and a Tax Accountant before finalising any property settlement to ensure the orders are correctly drafted, and all tax implications are fully understood. The CGT liability (even if deferred) must be adequately considered when dividing the overall asset pool.

FAQ - Capital Gains Tax and Consent Orders

Transferring an investment property, shares, or business assets during a separation could trigger an immediate Capital Gains Tax (CGT) event. However, formal Consent Orders can grant you CGT rollover relief under teh current Australian tax law. This relief automatically defers the tax liability so the partner transferring the asset pays no immediate CGT. Instead, the tax liability rolls over to the receiving partner, who pays CGT only when they eventually sell the asset to a third party. Learn how to structure your property split tax-efficiently at Consent Orders and Capital Gains Tax.
2. Can an informal agreement or private contract secure CGT rollover relief?
No, a handshake deal or informal written agreement will not qualify you for CGT rollover relief with the ATO. The Australian Taxation Office strictly requires a legally binding court order, such as a Consent Order, or a Binding Financial Agreement (BFA). Transferring assets without these documents triggers an immediate taxable event, forcing the transferring partner to pay capital gains tax in that financial year based on market value.
3. Who pays the Capital Gains Tax when the transferred asset is eventually sold?
The partner who receives the asset assumes the original cost base and inherits the future CGT liability. When that receiving partner eventually sells the investment property or shares down the track, the ATO calculates CGT based on the asset’s original purchase price—not its value when transferred during the divorce. This means the receiving partner pays CGT on all growth since the initial purchase. Factoring this hidden tax liability into your asset settlement ensures a truly equal division.  Tax advice from your accountant is highly recommended.
4. Does CGT rollover relief apply to our primary family home?
Your main residence generally remains exempt from Capital Gains Tax under the main residence exemption, so rollover relief isn’t usually necessary for the family home. However, if you used part of the home to produce income—such as renting out rooms or running a business—CGT rules apply to that proportion. Furthermore, if one partner moves out and holds onto ownership before a final transfer, partial CGT liabilities can build up over time. Drafting Consent Orders correctly ensures you maximise all available tax exemptions. Tax advice from your accountant is highly recommended.
5. How do I ensure our asset split accounts for future CGT liabilities fairly?
You must factor potential future CGT liabilities into your property negotiations to avoid one partner receiving an unfair deal. An asset worth $1 million in cash is far more valuable than an investment property worth $1 million that carries $200,000 in latent tax liability. Family courts evaluate these net values when assessing whether a split is “just and equitable.” Working with a lawyer and accountant allows you to offset latent CGT against other assets in your Consent Orders. Tax advice from your accountant is highly recommended.
 

 

General information about Kate Austin Family Lawyers can be found on our home page or if you would like information about our story or Rachel and Brendan there are links on our home page.

Kate Austin Family Lawyers provides a national service. Family Law is a federal jurisdiction so the law are uniform across the country. No matter where you are located we can assist. Sunshine Coast  Newcastle  Canberra Sydney  Melbourne 

This information is general in nature and cannot be interpreted as legal advice. Legal advice can only be provided by a qualified legal practitioner.

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