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.
