The ATO had a victory last week as a result of the Full Federal Court’s decision in Ellison v Sandini Pty Ltd [2018] FCAFC 44. The Full Court held that the Capital Gains Tax (“CGT”) rollover relief under the Marriage breakdown provisions is restricted to transfers between spouses and from entities to spouses only. 

The trial Judge’s decision allowed for the CGT rollover to apply a transfer of assets from one entity to another, which was contrary to the prior “wisdom” of tax advisors. However, the judgement of the Full Federal Court restores normality in the interpretation of the rollover and its scope.

Originally, a Family Court order had been obtained requiring Ms Ellison to receive shares valued at $2.5million from an entity owned and controlled by her former husband (Sandini Pty Ltd). Ms Ellison requested that the shares be transferred to a trust controlled by herself.

The Federal Court held that Ms Ellison’s directions to transfer the shares to her trust provided sufficient “involvement” for the Marriage breakdown rollover to apply. This was a significant change to the prior understanding of the legislation which did not comment on entity to entity transfers of assets.

The ATO appealed to the Full bench of the Federal Court. The Court held that the Marriage breakdown CGT rollover of Section 126A was not available in this instance. The Court reiterated the prior “wisdom” – that this rollover only applied if the assets had been transferred from a company, trust or spouse to a spouse or former spouse. Ms Ellison’s direction to transfer the shares into her trust was an insufficient connection to the transfer for the relief to apply.

The final judgement dictated that no rollover relief was available to Sandini Pty Ltd and hence it was required to pay CGT on the transfer. Further, the shares now owned by Ms Ellison’s trust have a cost base equal to their market value.

In short, divorces can have many complicated tax issues, especially when entities are part of the family group. Where any settlements had been drafted on the basis of the trial Judge’s decision, we recommend you re-visit the proposals to avoid potentially nasty CGT consequences.


Should you require advice regarding the tax implications of marriage breakdowns, please contact Brian McDonald, Murray Howlett and Jennifer Veitch of our office on (07) 3023 1300.