- 5 Marks
Question
On the death or as part of a divorce settlement or bona fide separation agreement, an individual may transfer an asset to a spouse or former spouse.
Required:
What are the taxation rules on this arrangement?
Answer
- When an individual transfers an asset to a spouse or former spouse during a divorce settlement, separation agreement, or upon death, the transfer is treated as follows:
- No capital gain or loss is realized by the individual making the transfer.
- The individual is treated as if they derived an amount equal to the net cost of the asset immediately before the realization.
- The spouse or former spouse who receives the asset is treated as having incurred an expenditure equal to the net cost of acquiring the asset.
- As a result, the transaction does not trigger capital gains tax for the individual making the transfer. The net cost refers to:
- For a depreciable asset, the written down value of the pool it belongs to, apportioned according to the asset’s market value.
- For other assets, the net cost is the cumulative cost less any cumulative consideration received for the asset.
(5 marks)
- Tags: Asset Transfer, Capital gains tax, Death, Divorce, Separation
- Level: Level 2
- Topic: Taxation of Capital Gains
- Series: MAY 2021
- Uploader: Theophilus