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Capital Gains Tax in Family Law Matters

capital gains

Capital gains tax can be costly. Therefore, it can become a very “live” issue between parties in negotiating a family law property settlement and one party wishes to retain an asset which, if sold, would be liable to Capitals Gains Tax.

The case most frequently quoted in relation to this issue is Rosati v Rosati (1988) FLC92-804. In Rosati v Rosati, the Full Court said:

“It appears to us that although there is a degree of confusion, and possible conflict, in the reported cases as to the proper approach to be adopted by a Court in proceedings under Section 79 of the Act in relation to the effect of potential Capital gains tax, which will be payable upon the sale of an asset, the following general principals may be said to emerge from those cases:

1. Whether the incidence of Capital gains tax should be taken into account in valuing a particular asset varies according to the circumstances of the case, including the method of valuation applied to the particular asset, the likelihood otherwise of that asset being realised in the foreseeable future, the circumstances of its acquisition and the evidence of the parties as to their intentions in relation to that asset.

2. If the Court orders the sale of an asset, or is satisfied that a sale of it is inevitable, or would probably occur in the near future, or if the asset is one which was acquired solely as an investment and with a view to its ultimate sale for profit, then, generally, allowance should be made for any capital gains tax payable upon such a sale in determining the value of that asset for the purpose of the proceedings.

3. If none of the circumstances referred to in (2) applies to a particular asset, but the Court is satisfied that there is a significant risk that the asset will have to be sold in the short to mid-term, then the Court, whilst not making allowance for the capital gains tax payable upon such a sale in determining the value of the asset, may take that risk into account as a relevant s 75(2) factor, the weight to be attributed to thaty factor varying according to the degree of the risk and the length of the period within which the sale may occur.

4. There may be special circumstances in a particular case which, despite the absence of any certainty or even likelihood of a sale of an asset in the foreseeable future, make it appropriate to take the incidence of capital gains tax into account in valuing that asset. In such a case, it may be appropriate to take the capital gains tax into account at its full rate, or at some discounted rate, having regard to the degree of risk of a sale occurring and/or the length of time which is likely to elapse before that occurs.”

In 2014, the case of Boyle & Boyle (2014) FCCA2576 looked at the issue of Capital gains tax.

In that matter, the parties owned a holiday house and the husband said that he had a capital gains tax liability of $68,625. At the time, the husband was living in that house and he had no present intention of selling the home. The husband did not provide any expert evidence about the amount of capital gains tax that would be payable if it was to be sold. Taking into account the decision of the Full Court of the Family Court in Rosati v Rosati, the Court held that the expected capitals gains tax on the holiday house could not properly be taken into account.

At Doolan Callaghan Family Lawyers, our specialist family law team are experts in their field and well acquainted with how the Court deals with the division of assets between parties and liabilities and potential capital gains tax. We would be pleased to be of assistance to you should you require any family law advice and we can be best contacted on telephone: 9984 7411 email: enquiries@doolancallaghan.com.au.

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