Divorce & CGT on Transfers on Super

What are the tax concequences when my wife & I divorce and splitting her share of my super to her new fund?

- Taxid

Hi Taxid

Divorce is hard at the best of times, however, if your ex-spouse is rolling over to a public offer fund, the assets will have to be realised (cashed) and CGT is payable.  This is because most public offer funds can only recieve cash transfers.

However if your ex-spouse is setting her own SMSF, and rolling the super assets to her new fund, as is permissible.  Then a recent ATO Interpretative Decision is very good reading, as CGT rollover relief may be permissible.

ATO ID 2006/73

Issue

Is rollover relief available under subsection 126-140(1) of the Income Tax Assessment Act 1997 (ITAA 1997) when the trustee of a self managed superannuation fund (SMSF), to which both spouses belong, transfers a CGT asset to another SMSF, to which only one spouse belongs, because of a payment split under the Family Law Act 1975 (FLA 1975)?

Decision

Yes. Rollover relief is available under subsection 126-140(1) of the ITAA 1997 for the proportion of the CGT asset that relates to the interest subject to the payment split, but is not available for the proportion of the CGT asset that relates to the interest not subject to the payment split.

Facts

Spouses A and B were members of an SMSF (SMSF 1). When their marriage broke down, a payment split under subsection 90MT(4) the FLA 1975 was made in favour of B over A's superannuation interest in SMSF 1.

B set up a second SMSF (SMSF 2) in which A was not a member. The purpose was to transfer B's entire interest in SMSF 1 to SMSF 2.

The trustee of SMSF 1 transferred a CGT asset to the trustee of SMSF 2 to give effect to the waiver notice issued by B under section 90MZA of the FLA 1975.

Reasons for Decision

Subsection 126-140(1) of the ITAA 1997 states:

There is a roll-over if:

(a) an interest in a *small superannuation fund is subject to a *payment split; and

(b) the *non-member spouse in relation to that interest serves a waiver notice under section 90MZA of the Family Law Act 1975 in respect of that interest; and

(c) as a result of serving the notice, the trustee (the transferor ) of the fund transfers a *CGT asset to the trustee (the transferee ) of another small superannuation fund for the benefit of the non-member spouse.

* denotes a term defined in section 995-1 of the Income Tax Assessment Act 1997.

Rollover relief is therefore available where the conditions relating to the payment split, the waiver notice and the transfer of a CGT asset are satisfied. Therefore, when the trustee of SMSF 1 transferred a CGT asset to the trustee of SMSF 2:

The proportion of the asset that relates to Spouse A's interest in SMSF 1, being the interest that was subject to the payment split, will be covered by rollover relief under subsection 126-140(1) of the ITAA 1997.

The proportion of the asset that relates to Spouse B's interest in SMSF 1 will not be covered by rollover relief under subsection 126-140(1) of the ITAA 1997 because Spouse B's interest was not subject to the payment split. Issue

Date of decision: 2 March 2006

Legislative References:
Income Tax Assessment Act 1997
   subsection 126-140(1)

Family Law Act 1975
   subsection 90MT(4)
   section 90MZA

Related ATO Interpretative Decisions
ATO ID 2003/612

To discuss in more detail please call the office of Super Outsource on 02 9375 2139.

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