Splitting super on marriage breakdown - Family Law provisions
Superannuation interests can be allocated between a married couple when their marriage breaks down. This allocation may be effected through a Financial Agreement between the parties ( Superannuation Agreement) or by an order of the Family Court (a Property Order, under s 79). The relevant law is in Part VIIIB of the Family Law Act 1975 (Cth) ( FLA).
Although a Superannuation Agreement is binding on the parties, it does not have the same status as a court order - this is in contrast to a Property Order.
The married couple has 3 options about how to deal with their superannuation in a marriage breakdown. The options are:
Agreement: The parties may decide (before, during or after the marriage) how superannuation interests will be treated if the marriage breaks down. The agreement is a "Superannuation Agreement" which is defined as follows:
(The definition is in Section 90MH of the FLA.)
Court order: If the parties are not able to agree how the superannuation interest will be split, then a party may ask the Family Court to make a Property Order.
Deferred: The parties may defer any agreement about how to split a superannuation interest. In these circumstances, the benefits are 'flagged' and the trustee of the superannuation fund is prevented from dealing with them until the flagging order (FLA section 90MU) is lifted by court order or agreement.
Rollover relief is available to various parties in various ways. In summary, limited CGT rollover relief is available if a super split occurs pursuant to a Superannuation Agreement (as opposed to a Property Order). However, help is at hand with new legislation due to commence shortly which provides rollover relief for CGT events occurring as a result of a Superannuation Agreement.
Currently, trustees of small superannuation funds 1 receive the benefits of CGT rollover relief in the context of a transfer of superannuation benefits upon marriage breakdown, whether pursuant to a Superannuation Agreement or a Property Order (section 126-140 ITAA97).
CGT rollover relief for spouses and trustees of funds other than small superannuation funds upon marriage breakdown is only available if an asset has been transferred to a spouse or former spouse because of:
CGT rollover relief for spouses and trustees is not available in the context of Superannuation Agreements: nor is it available in respect of arbitral awards made in the context of a marriage breakdown.
The Tax Laws Amendment (2006 Measures No 4) Bill 2006 (the TLA Bill) proposes to extend the existing CGT rollover relief to a CGT event which occurs as a result of:
As a result of these amendments, CGT rollover relief for CGT events occurring as a result of a Superannuation Agreement (which is currently only available to trustees of small superannuation funds) will be extended to spouses and trustees of all super funds.
The TLA Bill was read for a second time in the Senate on 16 October 2006. The TLA Bill has not yet received Royal Assent. It is proposed that the amendments will apply to CGT events occurring on or after the date of Royal Assent.
An explanation of the current law is below.
Rollover relief available for trustees of Small Superannuation Funds (does apply to Superannuation Agreements)
When a trustee of a small superannuation fund transfers an asset to another small superannuation fund on marriage breakdown, then a â?? same asset rollover' may apply. In that case, any capital gain or loss made by the trustee is deferred (ITAA97 section 126-140).
But there are limited conditions...
The rollover is available only if either of the following conditions are satisfied under ITAA97 section 126-140(1) and (2):
Consequences of this type of rollover
As a result of a rollover, the following consequences arise under ITAA97 sections 126-140(3) to (5):
Rollover relief for the spouse (does not apply to Superannuation Agreements)
Rollover relief is also available to the spouse in respect of CGT events involving spouses under ITAA97 section 126-5.
Section 126-5 of the ITAA97 provides that:
There is a roll-over if a CGT event (the trigger event) happens involving an individual (the transferor) and his or her spouse (the transferee), or a former spouse (also the transferee) because of:
Rollover relief for trustees of funds other than small superannuation funds (does not apply to Superannuation Agreements)
Section 126-15 of the ITAA97 provides that:
There are 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:
The consequences of this provision are that the same CGT rollover relief provided in section 126-5 (for spouses) — discussed above in 2 — is available to the trustee of the transferring fund. The trustee may be an individual or a company.
For more information on the current law — or on the pending changes —, contact Julian Smith at Maddocks on (03) 9288 0555.
Andrew is a lawyer in the Maddocks Tax & Revenue team.
Andrew provides advice on:
His advice covers both direct and indirect tax considerations.
Prior to joining Maddocks, Andrew was a tax consultant at a Big 4 Chartered Accounting Firm.
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