With less than two weeks until the end of the financial year, this is a timely reminder for anyone going through — or advising on — a separation. Going through a separation is never easy. Alongside the emotional and practical challenges, there are financial and tax issues to consider, and at this time of year the clock is ticking. Many people are surprised to learn that the timing of your separation, and how things are structured, can make a real difference to your tax outcome.
This article explains, in plain English, what you need to know about tax at EOFY when separating — with practical examples of how these issues commonly play out.
⚠️ Important note on 2026 Federal Budget reforms: On 12 May 2026, the Federal Government announced significant changes to capital gains tax, negative gearing, and discretionary trust taxation. These measures are not yet law and will need to pass the Senate. Details may change during the legislative process. Where these reforms are relevant, they are noted throughout this article. Anyone separating now should seek updated legal and tax advice.
Key takeaways
- The timing of separation around 30 June can affect who reports income, who claims deductions, and how assets are treated for that financial year.
- Asset transfers under family law settlements can attract rollover relief, but tax is generally deferred — not eliminated — and may be higher under proposed rules applying from 1 July 2027.
- The CGT discount is changing: for gains accruing after 1 July 2027, a new indexation and minimum 30% tax regime will replace the existing 50% discount — making settlement structuring more important than ever.
- The family home is not always tax-free after separation; whether the main residence exemption applies depends on what you do with the property after you leave.
- Negative gearing on established investment properties purchased after 12 May 2026 will be restricted from 1 July 2027, and discretionary trusts face a 30% minimum tax from 1 July 2028 if current proposals are legislated.
Why does EOFY matter so much when you’re separating?
The end of the financial year — 30 June — is when income and financial positions are finalised for tax purposes. Separation does not automatically change how income and assets are reported. If you and your former partner still jointly own an investment property at 30 June, for example, rental income earned before that date will generally still need to be declared based on ownership — even if one of you has already moved out.
This means that decisions made in the weeks around EOFY can affect your tax position for the entire financial year. It also means that poorly timed transfers or overlooked income can create unexpected liabilities.
What happens to assets when you separate?
Dividing assets is a central part of any separation. From a tax perspective, the critical question is whether transferring an asset triggers a tax obligation — and if not immediately, when that tax will fall due.
What is capital gains tax, and how does it apply to separating couples?
Capital gains tax (CGT) applies when an asset that has increased in value is sold or transferred. In many family law property settlements, CGT rollover relief can apply, meaning no immediate CGT is payable at the time of transfer. Instead, the receiving party takes on the original cost base, and CGT becomes payable later when the asset is eventually sold.
This is an important distinction: the tax is not avoided — it is deferred. If you receive an investment property as part of a settlement today, you are also inheriting a future tax liability that will fall due when you sell.
How are the CGT rules changing from 1 July 2027?
⚠️ Major change: The CGT discount is being replaced from 1 July 2027
The 2026 Federal Budget announced the most significant reform to CGT since 1999. From 1 July 2027, the existing 50% CGT discount for individuals, trusts and partnerships will be replaced with two new elements if these proposed changes are passed by parliament.
- Cost-base indexation: the cost base of an asset will be adjusted upward for CPI inflation over the holding period, so only real gains above inflation are taxable.
- A minimum 30% tax rate on capital gains, intended to prevent gains being shelved into low-income years.
For gains accruing before 1 July 2027, the existing 50% discount still applies. For gains accruing after that date, the new rules will apply. This makes the timing and structuring of settlements more important than ever. An investment property received as part of a settlement today and sold in five years may attract materially more tax than you would currently expect — particularly for long-held assets with large nominal gains.
The main residence exemption is not affected by these changes. Investors in new residential property will be able to choose either the current 50% discount or the new rules at the time of sale.
What happens to the family home?
The family home is often assumed to be automatically tax-free after separation. Whether that is actually the case depends on what you do with the property — and the arrangements can be more complicated than they appear.
Can both parties still claim the main residence exemption?
If both parties continue to genuinely treat the home as their main residence after separation — for example, in a “nesting” arrangement where parents rotate in and out while each also maintains a separate rental — the full CGT exemption may still apply. However, if either party starts treating another property as their main residence, the exemption may need to be reduced or shared.
Where one party remains in the home and the other rents elsewhere, both may be able to preserve the exemption for a period. The person living in the home will generally continue to access the main residence exemption, while the person who has moved out may still rely on the six-year rule. Parties who are potentially affected should seek their own accounting advice.
What is the six-year rule, and how does it work?
The six-year rule allows you to keep treating a property as your main residence after you move out. It applies:
- For up to six years if the property is rented
- Potentially longer if it is not rented
- Only if you do not treat another property as your main residence during that period
In practice, a person who moves out, rents elsewhere, and later sells the former family home may still be able to avoid CGT under the six-year rule. But if they buy another home and treat that as their main residence, they may lose this benefit. The six-year rule is not affected by the 2026 Budget reforms. Parties who are potentially affected by this should seek independent accounting advice.
What happens when the family home is eventually sold?
The tax outcome depends on what has happened in the interim. If one party remains in the home and it is sold within a year or two of separation, the sale will often be fully exempt from CGT. If the property is rented before sale, the six-year rule may still apply — but if conditions are not met, part of the gain may become taxable. If both parties have purchased new homes and treated those as their main residences, the CGT exemption on the original property may need to be apportioned.
Small decisions — like renting the property temporarily or purchasing a new home — can have lasting tax consequences that are difficult to unwind later.
What about investment properties and shares?
How are investment properties affected by the 2026 Budget changes?
⚠️ Major change: negative gearing on established investment properties is being restricted from 1 July 2027
From 1 July 2027, negative gearing will be limited for established residential investment properties purchased after 7:30pm AEST on 12 May 2026 if these proposed changes are passed by parliament. The rules break down as follows:
- Existing properties (held or under contract before 12 May 2026): grandfathered — negative gearing continues under current rules.
- Established properties purchased after 12 May 2026: losses can only be offset against other residential property income or capital gains from residential property, not against salary or general income. Excess losses are quarantined and carried forward.
- New builds: negative gearing is still fully available, and investors can choose either the 50% CGT discount or the new rules at the time of sale.
For separating couples, this creates a significant consideration. When an investment property is transferred as part of a family law settlement, the receiving party may be treated as acquiring it at the time of transfer. If that transfer occurs after 12 May 2026, the new negative gearing restrictions may apply from 1 July 2027. The date of acquisition matters enormously when structuring settlements involving investment properties.
How are shares, funds and crypto treated at EOFY?
These assets often create confusion around timing. Income — such as dividends — is generally taxed based on who legally owns the asset at the time the income is derived. If you separate in May and dividends are paid in June, both parties may still need to declare that income for the financial year, based on their legal ownership at the time. Under the proposed CGT changes, future capital gains on shares and other investment assets will also be subject to the new indexation and minimum tax rules from 1 July 2027 for gains accruing after that date. Parties potentially affected by this should obtain independent accounting advice.
What about trusts and company structures?
How does separation affect a family trust?
Trusts require particular care around EOFY — and they are now subject to significant proposed reforms. Where a trust distributes income to one spouse at 30 June after separation, that person may still be taxed on the distribution, even if they no longer have practical control over or benefit from the trust.
⚠️ Major change: 30% minimum tax on discretionary trusts from 1 July 2028
The 2026 Budget announced a 30% minimum tax on discretionary (family) trusts, intended to prevent income splitting. From 1 July 2028, if legislated:
- The 30% minimum tax will apply at the trustee level on the trust’s taxable income.
- Non-corporate beneficiaries will receive a non-refundable tax credit for the tax paid by the trustee.
- Beneficiaries on lower tax rates (below approximately $45,000 taxable income) may face a higher net tax outcome.
- The exclusion of corporate beneficiaries from receiving credits will effectively end most bucket company arrangements.
- A three-year restructuring rollover relief will be available from 1 July 2027 for those who need to restructure out of discretionary trust arrangements.
For separating couples, trust structures that were tax-effective at the time of settlement may produce very different outcomes within a few years. Anyone retaining an interest in a family trust, or receiving trust distributions post-separation, should factor these changes into their planning now. The rollover window is time-limited — do not wait.
What about company structures?
Companies with retained profits require careful handling. Those funds are not automatically available to either party — accessing them usually requires dividends, which may trigger tax. While the 2026 Budget measures do not directly alter company tax rates, changes to trust rules and CGT may affect planning strategies that involve company structures.
What happens with debts and liabilities?
Debts are just as important as assets and can carry ongoing risk that is often underestimated.
If one party agrees to take over a joint mortgage, the lender is not bound by that private agreement. Unless the loan is formally refinanced, the bank retains the right to pursue both parties for the debt. Similarly, if the parties agree between themselves that one person will pay an ATO debt, the ATO is not bound by that arrangement and can still pursue either party if the debt remains unpaid. Personal agreements about debt do not change the rights of third parties — including the ATO.
How is superannuation treated differently?
Superannuation follows different rules. Where one party receives a portion of the other’s super as part of a settlement, no tax is usually payable at the time of the split. Tax is applied later, when the super is accessed, and the long-term outcome depends on timing and withdrawal rules. The proposed CGT reforms do not affect the CGT discount within superannuation funds.
What are the most common mistakes separating couples make?
The most significant mistake is assuming all asset transfers are tax-free. A CGT rollover defers the liability — it does not eliminate it — and under the proposed 2027 rules, that deferred liability may be calculated differently than you expect.
Other common mistakes include:
- Ignoring ATO debts, which remain enforceable regardless of private agreements between the parties
- Missing trust distribution deadlines around EOFY
- Failing to review living arrangements promptly, which can affect the main residence exemption and the six-year rule
- Assuming the current 50% CGT discount will apply to future sales — an increasingly risky assumption for anyone settling now
- Overlooking the negative gearing restrictions on established properties purchased after 12 May 2026
- Failing to plan around the proposed 30% trust minimum tax when retaining or receiving trust interests
When should you seek legal advice?
The sooner you seek advice, the more options you have. You should seek legal advice urgently if any of the following apply:
- You are approaching 30 June with unresolved asset ownership
- Your settlement involves investment properties or trust interests
- Either party is considering purchasing a new property
- There are outstanding ATO debts in either name
The window for restructuring trust arrangements under the proposed rollover relief is time-limited. Decisions made now — particularly around asset transfers and property purchases — will determine which tax rules apply to your settlement going forward.
How can MST Lawyers help?
Separation is already a difficult time, and the 2026 Federal Budget reforms mean the tax landscape is shifting in material ways. Our family law team works closely with clients and their advisers to:
- Structure settlements with both current and proposed tax rules in mind
- Reduce the risk of unexpected tax outcomes arising from the new CGT, negative gearing and trust changes
- Ensure that agreements are clear, effective, and built to last
If you are separating and have questions about how tax may affect your property settlement, contact MST Lawyers to speak with a member of our family law team.
Frequently asked questions
Will I have to pay tax when assets are transferred as part of a property settlement?
Often no upfront tax applies to asset transfers under a family law settlement, because CGT rollover relief can defer the liability. However, tax will generally be payable later when the asset is sold — and under the proposed 2027 CGT changes, the amount of that deferred tax could be higher than under current rules for gains accruing after 1 July 2027. You should seek advice to understand the full long-term exposure.
What is the six-year rule in simple terms?
It allows you to continue treating a former home as your main residence for CGT purposes after moving out — generally for up to six years if the property is rented — provided you do not claim another main residence during that period. This rule is not affected by the 2026 Budget reforms.
Can the ATO still pursue me for a tax debt after separation?
Yes. The ATO is not bound by private agreements between separated parties. If you have a joint tax debt or an arrangement to pay the other party’s tax debt, you remain legally exposed unless the matter is resolved directly with the ATO.
Is superannuation splitting taxed at the time of settlement?
Generally not. Tax on superannuation is applied when benefits are accessed, not at the time of the split. The proposed CGT reforms do not affect the CGT discount within superannuation funds.
How will the new CGT rules affect my settlement?
For gains accruing before 1 July 2027, the current 50% discount still applies. For gains accruing after that date, cost-base indexation and a minimum 30% tax will apply instead. This is particularly relevant for assets that are likely to be held and sold well beyond 2027. You should seek advice to model the specific impact on your circumstances.
What happens to my family trust in a separation?
If a discretionary trust is part of your settlement, the proposed 30% minimum tax from 1 July 2028 may significantly alter its value. A restructuring rollover is expected to be available from 2027 to allow transfers out of trust structures without immediate CGT consequences. The window is time-limited — do not wait to seek advice.
Ready to talk to a family lawyer?
Property settlements are complex at the best of times. With major tax reforms now in play, the decisions you make during separation can have consequences that play out for years. MST Lawyers’ family law team can help you understand your position and structure a settlement that protects your interests — now and under the rules that are coming.
Contact MST Lawyers to arrange a consultation with a member of our family law team.
Reviewed by Carmel Morrison Principal Partner (Family Law) MST Lawyers.
This article is intended to provide general information only and does not constitute legal advice. It does not constitute tax advice — you should consult a qualified accountant or tax adviser about your specific tax position. Laws and proposed measures referred to in this article may change. Do not rely on this article as a substitute for professional advice specific to your circumstances.
