Section 9HB of the Income Tax Act provides for a roll-over of a capital gain or loss when an asset is transferred between spouses during their lifetimes. The roll-over is mandatory, and spouses do not have the option to elect out of it. The policy rationale for the roll-over is that the transferor spouse must benefit from not immediately having tax exposure on a transaction since the transferee spouse will pay the downstream tax when they eventually dispose of an asset, or when it becomes part of the estate.
Importantly, the roll-over relief in section 9HB will not apply when a person disposes of an asset to a spouse who is not a resident.
On a practical level, the relief works as follows:
- The disposing spouse (transferor spouse) must disregard any capital gain or loss when disposing of an asset to his or her spouse (transferee spouse).
- The transferee spouse takes over all aspects of the history of the asset from the transferor spouse. The transferee spouse is deemed to have:
- acquired the asset on the same date that the asset was acquired by the transferor
- incurred an amount of expenditure equal to the expenditure that was incurred by the transferor in respect of that asset
- incurred that expenditure on the same date and in the same currency that it was incurred by the transferor
- used that asset in the same manner that it was used by the transferor
Notably, apart from outright transfers, the following events are treated as disposals between spouses:
(a) A deceased spouse
In the event of the death of one spouse, the resident surviving spouse must be treated as having disposed of an asset to that spouse immediately before the date of death – if the deceased estate of that spouse acquires ownership of that asset in settlement of a claim arising under the Matrimonial Property Act.
(b) A divorce or court order
A person must be treated as having disposed of an asset to his or her spouse if that asset is transferred to that spouse in the following cases:
- Divorce
- A religious marriage or civil union, where an agreement of division of assets has been made an order of court.
The special rules under section 9HB must be considered to determine the tax implications when a person disposes of an asset to his or her spouse. While providing for a roll-over of a capital gain or capital loss when an asset is transferred between spouses during their lifetimes, it also ensures that a resident spouse to whom an asset is disposed of, takes over all aspects of the history of the asset from the transferor spouse.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)