Capital gains tax (‘CGT’) is a common issue in family law property matters involving investment properties or other taxable assets such as but not limited to shares, vacant land, and business premises. The Court does not automatically deduct CGT from the property pool. Whether CGT is included in the asset pool as a deduction depends on the facts of each case.
The main case law on this issue is in Rosati & Rosati (1998) FLC, which was recently reaffirmed in Marlin & Henson [2025] FedCFamC1A 71. The Court said potential CGT may be considered if it is inevitable or probable that a sale will occur in the near future.
When CGT May Be Deducted
The Court may allow for CGT in the value of an asset where:
- A sale is required by the Court.
- A sale is highly likely or imminent.
- The asset was clearly acquired as an investment for future sale.
Where it is ‘possible’ that an asset is to be sold (not ‘probable’), CGT will not be deducted from the value; however, it may be considered under section 75(2) of the Family Law Act 1975 as a financial risk. If the sale of an asset is unlikely, CGT will usually not be contemplated.
A Recent Example: Marlin & Henson
In Marlin & Henson, the de facto husband argued that $3.3 million in CGT should be deducted due to his intention to sell his investment properties in three to five years. However, he also opposed any order by the Court for the sale of any of these properties and sought to retain them all.
The Court found that:
- His evidence was inconsistent.
- There was no real plan to sell.
- A sale was not inevitable or likely.
The Court declined to deduct CGT from the asset pool.
Broader Case Law on CGT
Other cases show how different circumstances affect the treatment of CGT:
- Rothwell & Rothwell (1994) FLC: CGT was deducted where valuation was based on realisable value and a sale was likely.
- Elgin & Elgin [2015] FamCAFC: Failure to consider tax consequences was found to be unjust.
- Rodgers & Rodgers (2016) FLC: CGT was too uncertain to deduct but considered under section 75(2).
- Taffner & Taffner (2021) FLC: Failure to account for likely CGT altered the fairness of the outcome.
- Rainford & Rainford [2020] FamCA: Future CGT was acknowledged and offset other adjustment factors.
What This Means for You
Whether CGT is deducted or considered depends on:
- The likelihood and timing of a sale.
- The purpose and history of the asset.
- The quality of the evidence provided.
If CGT applies, the Court may deduct it fully, apply a discounted rate, consider it under section 75(2), or not consider it at all.