The 2 most common tax considerations in family law are:
- Stamp Duty
- Capital Gains Tax
Stamp Duty
Stamp Duty is exempt if you transfer ownership in real estate between the parties pursuant to family law Court Orders, Consent Orders, or a Financial Agreement. You will need to complete the Application for Exemption or Refund - Break up of a marriage or De facto Relationship Form from Revenue NSW. Download and complete the form using the link: https://www.revenue.nsw.gov.au/help-centre/resources-library/forms/duty/oda069.pdf
The party retaining the interest of the real estate must complete the Purchaser's Declaration Form from Revenue NSW. This form is used by Revenue NSW to assess whether surcharge purchasers duty is applicable. Download and complete the form using the link: https://www.revenue.nsw.gov.au/help-centre/resources-library/forms/duty/oda076i.pdf
However, stamp duty is still payable if the married or de facto parties transfer ownership to a third party entity in a sale.
Case Study:
Person A and Person B are married and have finalised family law Consent Orders for a property settlement.
Family Home:
They own the family home in joint names. Person A will pay Person B the sum of $100,000 and Person B will transfer their interest in the family home to Person A. Person A will be exempt from stamp duty.
Investment Property 1:
They also own an investment property in joint names.
Under the agreement, Person B will transfer their interest in the investment property to Person A. Person B will be exempt from stamp duty.
Person B chooses to sell the investment property. The purchaser of the investment property will need to pay stamp duty.
Investment Property 2:
Person A and Person B have another investment property.
Under the agreement, the parties sell this investment property on the open market. The purchaser of this investment property will need to pay stamp duty.
Capital Gains Tax in Family Law
The leading case in family law about capital gains tax is Rosati v Rosati [1998] FamCA 38 (Rosati case). The Court's position was reaffirmed in the case of Taffner v Taffner [2021] FamCAFC 68 (Taffner Case).
Read the full judgments:
Capital Gains Tax (CGT) is the tax incurred from a transaction where a profit has been made from an investment. There are other factors taken into the calculation which will depend on the situation. The most common situations where CGT is incurred is where a profit is made in the following transactions:
the sale of an investment property
the sale of shares
The issue of CGT was dealt with in the Rosati case where the Full Court assessed how to treat CGT. Generally, it depends on the situation but CGT is factored in as the actual assessment or put as a risk that the sale could occur in the short to mid-term period.
You should also bear in mind whether your transaction is exempt from CGT. The exemption is most common when the assets were purchased before 1985 or if the asset was the parties' family home. You should seek advice from your tax accountant to calculate the potential CGT of any investments and serve a copy to your ex or their solicitor.
The above information is based in the NSW jurisdiction.
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