The Federal court found, in an application for declaratory relief, that breakdown of marriage rollover relief applied to a transfer of $2.5m of mining shares, from a trust he controlled by one spouse, to a corporate trustee of a trust controlled by his former spouse. The transfer was made pursuant to a family court order, which the transferee spouse successfully obtained, which is one of the requirements for rollover relief under s126-15 of the ITAA97. (see the copy of the relevant portion of this section below).
In making its finding, the Court first determined that it had the jurisdiction to hear the matter.
It then found that there was the requisite change in the beneficial ownership of the shares pursuant to CGT event A1. Moreover, it concluded that the transfer of the shares was entitled to the roll-over relief as the use of the term “transferee” in s 126-15 transfers involving a transferor trust or company) was to identify a person to whom the transfer is made, and not to prescribe or necessarily limit the capacity in which a person can be a transferee.
(Sandini Pty Ltd v FCT [2017] FCA 287, Federal Court, McKerracher J, 22 March 2017.)
Extract from the Income Tax Assessment Act 1997
126-15(1) There are the roll-over consequences in section 126-5 if the trigger event involves a company (the transferor ) or a trustee (also the transferor ) and a *spouse or former spouse (the transferee ) of another individual because of:
(a) a court order under the Family Law Act 1975 or under a *State law, *Territory law or *foreign law relating to breakdowns of relationships between spouses; or …
Catchwords from Federal Court decision
INCOME TAX – capital gains tax – roll over relief – whether a family court order transferring shares to a family trust may in some circumstances attract roll over relief pursuant to subdiv 126-A of the Income Tax Assessment Act 1997 (Cth) (‘ITAA’) – whether s 126-15(1) of the ITAA extends to transfers to companies or trusts associated with a spouse or former spouse – whether transferee must be an individual for the purposes of ss 126-5 and 126-15 of the ITAA – whether change in beneficial ownership constitutes a change in ownership for the purposes of s 104-10(2) of the ITAA – disposal of ownership by operation of law – whether the making of a family court order constituted a CGT event A1 – whether steps taken in furtherance of a family court order constituted the appropriation of shares pursuant to that order – whether there was a change in ownership by reason of constructive receipt of shares – whether there was a change in ownership by reason of s 103-10 of the ITAA – whether a spouse or former spouse’s involvement in the change of ownership is sufficient to enliven ss 126-5 and 126-15 of the ITAA
ADMINISTRATIVE LAW – jurisdiction – whether the court has jurisdiction to grant declaratory relief pursuant to s 39B(1A) of the Judiciary Act 1903 (Cth) – whether there is a genuine controversy between the parties that is susceptible to judicial determination – whether declaratory relief is available when a tax assessment is yet to be issued – whether Court should exercise its discretion to grant declaratory relief.
TRUSTS AND TRUSTEES – shares held on trust – certainty of trust property – whether possible to have trust of a certain number of shares out of a larger parcel of shares
FJM note
This is a significant decision. Many practitioners (if not most) had assumed that the ‘transferee’ had to be a ‘spouse or former spouse’ but it now looks like this definition (‘transferee’) was not meant to carry any substantive function.
It is also significant, also, that an action by way of declaration was made. This has been much talked about in the tax jurisdiction, but little progress had been made in income tax.
Further, it will be interesting to see if the Commissioner accepts this decision or appeals it. My sense is that the definitions (‘transferor’ and ‘transferee’) were not just gratuitously ascribed, but were intended to carry substantive meaning, too.
If the decision does stand, it will widen ‘breakdown of marriage’ relief in a very useful way.