The SingleMum.com.au 2011 Separation and Divorce Tax Info Links Guide

It’s tax time again, only this year things have changed – you have separated from your partner – but how does that affect your tax return?

To help you find out what the ATO will expect of your tax return now that you are single again, SingleMum.com.au has gathered together as much information as we could find that relates specifically to family breakdown – direct from the Australian Taxation Office (ATO) website. We hope that this will help you to make more informed decisions regarding your 2011 tax return – and maybe even improve your tax outcome!

To help you find out what the ATO will expect of your tax return now that you are single again, SingleMum.com.au has gathered together as much information as we could find that relates specifically to family breakdown – direct from the Australian Taxation Office (ATO) website. We hope that this will help you to make more informed decisions regarding your 2011 tax return – and maybe even improve your tax outcome!

When in doubt, for direct help with your tax, phone the ATO Tax Helpline on 13 28 61.

The following information was extracted directly from the ATO website as of 28th June 2011, however always check the ATO source webpage here for any updates or changes

To view the full family tax information guide, go direct to the ATO website here

To view the full family tax information guide, go direct to the ATO website here

Tax treatment of shared care of children

Child support and spouse support payments are not included in your taxable income, but they are part of your adjusted taxable income. Your adjusted taxable income may be used in the calculation of income tax offsets.

Child Support Agency

We cooperate with the Child Support Agency to:

• supply information to the Child Support Agency for the purpose of calculating child support payments
• encourage lodgment of outstanding tax returns
• recoup child support debt from tax returns

Refer to the Child Support Agency website (www.csa.gov.au) for information on tax returns and child support.

Tax treatment of shared assets

Selling an asset can mean you have to pay capital gains tax. However, when you transfer assets to your spouse as a result of the breakdown of your marriage or de facto marriage, it is classified as an ‘automatic rollover’ of those assets and you will not have to pay capital gains tax at that time. Automatic means you cannot choose whether or not it is a transfer or roll-over.

This rollover ensures the transferor spouse disregards a capital gain or capital loss that would otherwise arise, and the one who receives the asset (the transferee spouse) will make the capital gain or capital loss when they subsequently dispose of the asset.

Marriage or relationship breakdown and transferring of assets

Who is affected?

This applies to you if your marriage or relationship ended on or after 20 September 1985, and:

• you transfer an asset or a share of an asset to your spouse
• you receive an asset or a share of an asset from your spouse, or
• a company or trustee of a trust transfers an asset to you or your spouse

Definitions

• Asset includes a share of, or an interest in, a jointly owned asset
• Your spouse includes your former spouse
• Transfer of an asset means transferring ownership of an asset to the transferee spouse and includes ‘creating’ an asset in their favour (such as a right to use property)
• Transferee spouse refers to the spouse an asset is transferred to
• Transferor spouse is the person (or a company or the trustee of a trust) who transfers an asset to the transferee spouse

What is the marriage or relationship breakdown rollover?

As a general rule, capital gains tax (CGT) applies to all changes of ownership of assets on or after 20 September 1985. However, if you transfer an asset to your spouse as a result of the breakdown of your marriage or relationship, there is automatic rollover in certain cases. You cannot choose whether or not it applies more…

Relevant CGT events

For rollover to apply, one of the following events must happen. The transferor:

• disposes of an asset to the transferee spouse (CGT event A1)
• enters into an agreement with the transferee spouse under which
  the right to use and enjoy a CGT asset passes to the transferee spouse
  title in the asset will, or may, pass to the transferee spouse at the end of the agreement (CGT event B1)

more…

More Information




For an overview of capital gains tax, read Introduction to capital gains tax.

For further details, read Marriage or relationship breakdown rollover.

Summary of capital gains tax events includes details of the individual events referred to in this document.

Splitting of superannuation or annuities between divorcing partners is similarly treated as a roll-over. As the funds are not being released as a payment, this roll-over split does not need to wait until retirement.

Superannuation and relationship breakdowns

The Family Law Act 1975 and the Superannuation Industry (Supervision) Act 1993 (SISA) provide for an interest in superannuation (super interest) or a super payment to be divided or split by agreement or court order in the event of a relationship breakdown. These laws also apply to defacto couples, whether of the same or opposite sex.

A member’s super interest is defined as their ‘interest in a superannuation fund’ – generally, an account will constitute an interest in the fund.

Super agreements and court orders specify how a member’s super interest in the fund or how a super payment is to be split between the member and non-member spouse.

A spouse includes another person, although not legally married to the person, who lived with the person on a genuine domestic basis in a relationship as a couple (whether of the same or different sex).

Splitting super interests and payments

Depending on the rules of the fund, it may be possible for a member’s super interest to be split immediately upon receipt of the agreement or order, rather than waiting for a member’s benefit to become payable (such as when they meet a condition of release). This means that the obligations under the agreement or court order can be finalised closer to the time of separation, rather than waiting until retirement of the member spouse.

If available, a new super interest can be created for the non-member spouse in the member’s fund, or transferred or rolled over to another fund. In some cases, the non-member spouse may be immediately entitled to be paid their interest in the form of a super benefit.

The tax-free and taxable components of the super interest or a super payment must be calculated immediately before the interest split or payment, and divided between the split interests or payments in the same proportion.

Changes were made to the Family Law Act 1975 and Regulations regarding splitting annuities on relationship breakdown. The Income Tax Assessment Act 1936 was also amended to ensure that annuities are taxed consistently like other super benefits split on relationship breakdown.

For more information, refer to: Calculating the components of a super benefit Superannuation benefit component calculator

Super benefit payments from an interest subject to a payment split

Where a new interest in super is created for the non-member spouse, any super benefits subsequently taken by the non-member spouse from the new super interest are taxed according to the current rules for member benefits.

When relationship breakdown occurs after a super income stream has started to be paid, a super agreement or court order made under the family splitting laws can specify that the super income stream be split.

In most cases, the super income stream would be commuted and the non-member spouse paid the entitlement under the agreement or court order. The remainder would be paid to the member spouse either as a lump sum or a reduced super income stream.

Where the non-member spouse’s entitlement is paid as a super lump sum, it is treated as a separate super lump sum benefit for the non-member spouse.

If the non-member spouse’s entitlement is paid as a super income stream, it is treated as a separate income stream for the non-member spouse.

Where the super income stream is unable to be commuted due to the governing rules of the fund, the split is effected by dividing each income stream payment between the member spouse and non-member spouse.

The split will result in two regular payments being made from the same income stream, one each to the member spouse and non-member spouse.

More information on super and relationship breakdown is provided by the Department of the Attorney-General at www.ag.gov.au

Relationship breakdowns and the acquisition of ‘in specie’ super assets

If you are a trustee or investment manager of a regulated super fund, you are not prohibited from acquiring an asset from a related party of the fund where the acquisition occurs as the result of a relationship breakdown of a member of the fund.

In this case, ‘relationship’ includes opposite-sex and same-sex de facto relationships.

The asset may be acquired from a trustee or investment manager of another regulated super fund.

Tax consequences of splitting super

The tax consequences from splitting super on relationship breakdown could include:

• employment termination payments (ETPs) and pensions paid to the member spouse and non-member spouse being taxed separately
• ETP components being calculated for member spouse and non-member spouse entitlements individually
• capital gains tax being payable as a result of selling assets
• super lump sum payments being made by a super fund.

For more information, visit the Attorney-General’s Department website www.ag.gov.au

For help applying this to your own situation, phone 13 28 61.

Correct as of 28/06/2011 – Always check the ATO source webpage here for any updates or changes

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