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Property – error to exclude latent CGT liability…

…evidence indicated sale of investment property would occur in near future

In Shnell & Frey [2021] FedCFamC1A 55 (5 November 2021), the Full Court (Watts, Austin and Tree JJ) considered a wife’s appeal against an order that each party retain their respective property. 

The wife argued that it was not possible to discern how the decision was reached, and that the rejection of the capital gains tax (CGT) on the possible sale of a property owned by her as a liability was in error.

The Full Court said (from [64]):

“The primary judge placed the value of the wife’s Suburb L property on the balance sheet at its current value but rejected the wife’s submission that the latent CGT on that property also be included. … [T]he primary judge indicates … that she took the latent CGT into account when adjusting prospective factors.

[65] There was no controversy that if the wife’s Suburb L property was sold today then the CGT payable upon the distribution of the property would be $290,029 …

(…)

[76] … [T]he primary judge erred in failing to find that the sale of the property ‘would probably occur in the near future’ … [and] failed to recognise the undisputed evidence that this was an investment property held by the wife and had always been rented out.

(…)

[79] … [A]lthough it is true that the ultimate selling price might not be known, the value of the property was placed on the balance sheet at the date of the hearing and the latent CGT at that date was known. …

[80] … [T]he primary judge’s finding that the wife had made a concession in cross-examination which precluded the wife from relying upon the second limb of Rosati, was erroneous. Had the primary judge not made that error, it would have been appropriate for the primary judge to have included the latent CGT onto the balance sheet …”

The appeal was allowed and the discretion was re-exercised to reduce the asset pool by the wife’s latent CGT liability. The husband was ordered to pay costs.

Craig Nicol and Keleigh Robinson are co-editors of The Family Law Book. Both are accredited specialists in family law (Queensland and Victoria, respectively). The Family Law Book is a one-volume loose-leaf and online family law service (thefamilylawbook.com.au).

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