Introduction
Q1: If I transfer the house or shares to my ex because of a court order, do I have to pay capital gains tax straight away?
A: Usually not. The marriage breakdown rollover lets you defer the CGT, so no tax is payable at the moment of transfer as long as the asset moves to your spouse because of a Family Law Act order or agreement. The tax is not erased, it travels with the asset. Reference: Sandini Pty Ltd v Commissioner of Taxation [2017] FCA 287
Q2: Will the court knock the future CGT off the value of an asset I get to keep?
A: Not automatically. The court only allows for potential CGT when a sale is inevitable or likely to happen soon. If you want to keep the asset, the court usually ignores the tax you might pay years later. Reference: Marlin & Henson [2025] FedCFamC1A 71
Q3: Does it matter if the asset goes to a company or trust I control instead of to me personally?
A: Yes, and the mistake can cost you the rollover entirely. If the asset lands with a third party rather than the spouse named in the order, the transfer can trigger CGT in full. Reference: Ellison v Sandini Pty Ltd [2018] FCAFC 44
What is the marriage breakdown rollover and when does CGT apply?
When you split up and move assets around, the tax office still sees a disposal. Transferring a property, shares, or an investment is a CGT event A1 under section 104-10 of the Income Tax Assessment Act 1997, which is the same trigger that applies when you sell to a stranger. Left alone, that disposal can produce a capital gain and a tax bill at the worst possible time, right when you are trying to divide everything up.
The marriage breakdown rollover is the relief that stops this. Under section 126-5 of the ITAA 1997, if a CGT event happens between spouses or former spouses because of a Family Law Act court order or a financial agreement, the gain is rolled over. The Federal Court set out the rule plainly in Sandini Pty Ltd v Commissioner of Taxation [2017] FCA 287:
Section 126-5 (a CGT event involving spouses) relevantly 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 or former spouse (the 'transferee') because of a court order under the Family Law Act 1975 (Cth): s 126-5(1)(a).
For the rollover to work, three things need to line up:
- A CGT event between the right people. The transfer has to run from one spouse (the transferor) to the other spouse or former spouse (the transferee). The wording was treated as decisive in Ellison v Sandini Pty Ltd [2018] FCAFC 44.
- A qualifying trigger. The transfer must happen because of a court order under section 79 of the Family Law Act, an arbitral award, or a binding financial agreement, not a private side deal.
- The asset, not the entity, changes hands. The capital gain attaches to the asset and is carried by the spouse who receives it, who will pay the CGT if and when they later sell.
What the rollover does is shift the tax, not cancel it. The spouse who takes the asset inherits the original cost base, so the latent gain sits inside that asset until a future sale. That is why an asset with a big built-in gain is not worth the same as cash of the same face value.
Core Point: The rollover defers CGT, it does not delete it. When you receive an asset under the rollover, you also receive its tax history, and you become the person who pays when it is finally sold.
Why does getting the transfer structure right matter?
The rollover sounds automatic, but it turns on the exact path the asset takes. Get the structure wrong and you can lose the relief on the whole transfer. If the asset ends up with a company or trust you control rather than with you personally, the result can be brutal:
- The rollover is lost. The transfer is treated as an ordinary disposal and the full capital gain is taxed.
- The wrong party wears the bill. The transferor, or the transferor's trust, can be left liable for CGT that everyone assumed was deferred.
- The settlement maths breaks. A division that looked equal on paper becomes lopsided once an unexpected tax debt lands on one side.
A consent order in the Family Court of Western Australia required Sandini Pty Ltd to transfer 2,115,000 shares in a listed company, Mineral Resources Limited, to the wife. The order named the wife personally as the person to receive the shares.
After the order was made, the wife asked for the shares to go to a company she controlled, Wavefront Asset Pty Ltd, rather than to her own name. The husband agreed, and Sandini transferred the shares to Wavefront, not to the wife.
Outcome: The Full Court held that the rollover did not apply. Because the shares ended up with Wavefront and not the wife, the person named in the order, the transfer fell outside section 126-5. Jagot J found the section was not engaged, holding that Ms Ellison was not the transferee. The transfer that actually counted as the CGT event was the move to Wavefront, and that did not qualify.
This case also settled a second question that trips people up: when does the change of ownership actually happen? The Full Court held that for shares like these, making the order did not itself shift ownership.
CGT event A1 occurred, however, on either the execution of the share transfer form by Sandini or, at the latest, the subsequent registration of the share transfer.
Key Point: The order is only the instruction. The CGT event happens when the asset is actually transferred, and it must reach the spouse named in the order. Redirecting it to a trust or company, even a friendly one, can throw away the rollover.
How do courts handle CGT in different property settlement scenarios?
CGT shows up in two very different ways in a property case. One is the rollover question above, about deferring tax on an actual transfer. The other is a valuation question: should the court treat a future CGT bill as a present liability when it works out who gets what? The cases below walk through the situations you are most likely to face.
Scenario 1: Should the court deduct future CGT from the property pool?
Common Misconception: If an asset will attract CGT when it is eventually sold, the court must subtract that tax from its value now.
Legal Truth: It will not. The leading principle, from Rosati and Rosati [1998] FamCA 38, is that potential CGT is not automatically deducted. The court only allows for it where a sale is inevitable or likely in the near future. The greater the certainty and the closer the sale, the stronger the case for taking the tax into account.
The primary judge was not obliged to find that the further 20 per cent adjustment required sale absent evidence (and in light of the strong stated position of the appellant that he did not wish to be subject to an order for transfer or sale).
The husband held a group of investment properties. He argued that because he had bought them as investments, they would always carry a CGT liability of around 3.3 million dollars whenever they were sold, and that he intended to retire and sell within three to five years to fund the payout. On that basis he said the court had to deduct the potential CGT.
The trial judge did not believe him. She assessed his credibility and could not accept his claimed timeframe or his stated intention to sell at all. He wanted to keep the properties and opposed any order for sale. The judge dealt with the issue by ordering four properties transferred to the wife unencumbered, which simply deferred the CGT question rather than crystallising it.
Outcome: Appeal dismissed. The Full Court found no error. The husband had failed to persuade the court that a sale was inevitable, or likely to occur in the near future, or intended to occur at all, so the potential CGT was not deducted.
The opposite result follows when the order itself forces a sale. The decisive factor is not whether an asset is an investment, it is whether the party will actually have to sell.
| Factor | Marlin & Henson [2025]CGT not deducted | Vida [2023]CGT should be allowed |
|---|---|---|
| Asset and what happened to it | Investment properties the owner wanted to keep | Real estate that had to be sold to fund a large payout |
| Was a sale forced? | No, he opposed any order for sale | Yes, the size of the award compelled a sale |
| Evidence of the sale and tax | Judge rejected his claimed 3 to 5 year sale plan | Unchallenged evidence that a sale would trigger significant CGT |
| Outcome on CGT | Potential CGT ignored, transfer deferred the issue | Award set aside for failing to allow for CGT |
Key: The court looks at whether your settlement forces a sale. If you choose to keep an asset, expect to keep its future tax too. If the order leaves you no way to pay except by selling, the tax becomes part of the just and equitable picture.
What helps in this scenario:
- Lead concrete evidence if you say a sale is inevitable. Show the timing, the figures, and why you have no other way to pay.
- Do not argue both sides. Asking to keep an asset while also asking for a CGT discount on it rarely works.
- Get a proper CGT calculation from an accountant rather than asserting a round number.
Scenario 2: Can a party withhold CGT from sale proceeds as a cost of sale?
Common Misconception: If an order says a property is to be sold and the net proceeds split after the costs of sale, CGT is one of those costs and can be taken off the top.
Legal Truth: CGT is not a cost of sale. It is the seller's own tax, and it cannot be quietly subtracted from money owed to the other party unless the order actually says so.
The orders of Rees J... did not, in my view, intend CGT to be included as a legal cost of the sale.
An interim order required the husband to pay the wife 250,000 dollars within 28 days, failing which a property would be sold and the wife paid 50 per cent of the net proceeds after the real estate agent's fees and the legal costs of sale. The property was sold.
When it came time to hand over the wife's share, the husband held back 23,640 dollars, treating his CGT as one of the legal costs of sale under the order.
Outcome: McClelland J held he was not entitled to do that. CGT is not a legal cost of sale, so the deduction was not authorised by the order, and the husband had to account to the wife for the full amount. The judge noted that this did not make the tax disappear. At a final hearing the CGT on the property could still be treated as a joint liability of the parties and shared between them.
The lesson is about timing and authority. Enforcing an order is not the moment to self-assess your tax and dock the other side. The right place to deal with CGT is in the orders themselves or at the final hearing, where the court can decide whether it should be shared.
What helps in this scenario:
- Spell out in the orders exactly what comes out of the proceeds before the split. If CGT is meant to be shared, say so.
- Do not unilaterally withhold tax from money you owe under an order. Raise it and have it dealt with properly.
- If you think CGT should be a joint liability, put it on the table at the final hearing with evidence.
Scenario 3: What if a party deals with assets early or leads no CGT evidence?
Common Misconception: If a settlement will end up forcing me to sell something, the court has to factor in my CGT no matter how the situation arose.
Legal Truth: How the pressure to sell came about matters. If you created the need to sell by stripping assets out early, the court may refuse to make the other party absorb your tax. And if you want CGT taken into account, you generally have to prove it.
Therefore, it is the appellant's conduct... that visits upon him the risk that he may need to sell an asset... It is difficult to imagine then that the first respondent should or ought to bear the consequential costs or losses of such sale.
After separation the husband, an accountant, made a run of dealings that moved 1,358,423 dollars out of reach. He drew down on the mortgage account, declared an unprecedented dividend, and paid money to his sister. The trial judge responded with a 25 per cent adjustment in the wife's favour under section 75(2), taking the overall division to 80:20.
The husband argued the payout would force him to sell assets, so the court was wrong not to allow for CGT and realisation costs.
Outcome: Appeal dismissed. The Full Court held that his own conduct created the risk of a sale, and it would be perverse to make the wife carry the tax consequences of his unilateral behaviour. The court also pointed to findings that he had the ability to meet the tax debt between separation and trial and simply chose not to use the money available to him.
The evidence point comes through strongly in Vida [2023] FedCFamC1A 175. There, an arbitrator ordered the husband to pay the wife about 1.92 million dollars within four months, knowing he would have to sell real estate to find it. The husband mentioned the sale would have a significant tax impact but led no actual CGT figures, and the arbitrator made no allowance. On review the Full Court set the award aside, holding that where a sale was inevitable, ignoring CGT made the result fall short of being just and equitable. The same case confirms that an arbitrator can use the section 106B power to unwind a transaction, here a distribution of trust assets to the husband's mother, made to defeat the wife's claim.
What helps in this scenario:
- Do not deal with assets after separation in ways that look designed to shrink the pool. Courts can adjust against you and refuse to share the tax fallout.
- Pay tax debts you can afford to pay rather than letting them build as a tactic. Choosing not to pay can count against you.
- If you say a sale is inevitable, put the CGT figures in evidence. A bare statement that the tax will be significant is not enough.
For more on how courts treat money and assets moved out of the pool before settlement, see Spouse Wasted Assets? What Australian Courts Do Now. If a family trust holds the assets in question, Family Trusts and Divorce in Australia explains when the court will look through the structure. And for the broader framework on how property is divided, see How Property Is Divided in an Australian Divorce.
What should you do about CGT in a property settlement?
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Use the rollover, but transfer to the right person. Ellison v Sandini Pty Ltd shows that redirecting an asset to your own company or trust, instead of the spouse named in the order, can throw away the relief and trigger CGT on the whole transfer.
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Do not expect a free discount for future tax. Marlin & Henson confirms the court will not deduct potential CGT from an asset you want to keep unless you prove a sale is inevitable or close.
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Deal with CGT in the orders, not by self-help. Kelby shows you cannot treat your own CGT as a cost of sale and dock it from what you owe. Sort it out in the orders or at the final hearing.
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Your own conduct can sink your CGT argument. Shamon shows that if you create the need to sell by dealing with assets early, the court may refuse to make your ex bear the tax.
Do：
- Transfer the asset to the spouse named in the order so the rollover applies
- Lead real CGT figures from an accountant when you say a sale is inevitable
- Set out clearly in the orders what comes off sale proceeds before the split
- Account to your ex for the full amount owed and raise CGT separately
Don't：
- Redirect the asset to a company or trust you control after the order is made
- Assume the court will deduct future CGT on an asset you choose to keep
- Withhold your CGT from money you owe as a so-called cost of sale
- Strip assets out of the pool early and then ask the court to share the tax
