Tax Return After Divorce in Australia: What Changes and What to Claim

Divorce changes your tax position in ways that are easy to miss — and some of them have deadlines. Here is what actually changes on your tax return after separation and divorce, and how to avoid the mistakes that trigger ATO attention.

Update Your Marital Status with the ATO

The ATO uses your marital status to calculate the Medicare Levy Surcharge, the private health insurance rebate, and various tax offsets. You must update your status to "separated" or "divorced" via your myGov account linked to the ATO. There is no fee, and the update processes instantly.

The relevant date is the date of separation, not the date of the divorce order. If you separated on 1 March 2025, your marital status changes from that date forward — even if your divorce was not finalised until 2026.

The Medicare Levy Surcharge Shift

When you were married, the MLS income threshold was assessed on combined family income. After separation, you are assessed individually. If your individual income for 2025-26 is above A$93,000 (the singles threshold), you will be liable for the surcharge unless you hold an eligible private health insurance policy with hospital cover.

This catches many newly separated people who were previously covered under a family policy with combined income below the family threshold (A$186,000). As a single filer, the lower threshold applies.

CGT Rollover Relief on Property Transfers

Under the Income Tax Assessment Act 1997, property transfers between spouses (or former spouses) as part of a court-ordered property settlement are eligible for automatic CGT rollover relief. This means no capital gains tax is payable at the time of transfer — the receiving spouse inherits the original cost base and any future CGT liability is deferred until they eventually sell or dispose of the asset.

To qualify, the transfer must be made under:

• An FCFCOA court order (consent orders or a judicial determination)
• A binding financial agreement (BFA) under Part VIIIA of the Family Law Act

Transfers made under informal or verbal agreements do not qualify for rollover relief and may trigger an immediate CGT event.

The rollover applies to all CGT assets, not just the family home — including investment properties, shares, managed funds, and business assets. The family home itself is usually CGT-exempt under the main residence exemption, but this gets complicated when one spouse moves out during separation. If the property was not your main residence for the entire ownership period, partial CGT may apply.

Spousal Maintenance Is Not Deductible

Spousal maintenance payments (formerly called alimony in other jurisdictions) are not tax-deductible for the payer and not assessable income for the recipient. This is a common misconception. The ATO treats spousal maintenance as a private domestic arrangement, regardless of whether it is court-ordered.

Child support is also not deductible and not assessable income.

What You Can Claim

Legal Fees (Limited)

Legal fees related to your divorce are generally not deductible. However, there are narrow exceptions:

• Legal fees to earn or protect income (for example, fighting to retain income-producing assets like a rental property or business interest in a property settlement) may be deductible under Section 8-1 of the ITAA 1997
• Legal fees to obtain spousal maintenance are not deductible because the maintenance itself is not assessable income

The ATO scrutinises legal fee deductions heavily. Keep detailed invoices that separate income-related work from domestic/family matters.

Costs of Managing Transferred Assets

Once you receive assets through a property settlement, the ongoing costs of managing those assets become deductible under normal rules — property management fees on rental properties, interest on investment loans, accounting fees for share portfolios.

The Year of Separation: Split-Year Reporting

In the financial year that your separation occurs, you report your income for the full year as usual, but your marital status changes from the date of separation. This affects:

• Private health insurance rebate calculations (pro-rated)
• Medicare Levy Surcharge assessment (pro-rated)
• Family Tax Benefit and other Centrelink entitlements (assessed from separation date)

Keep records of the exact date of separation — if contested, the ATO uses the date on your separation declaration or the date recorded in your divorce application.

Superannuation Splitting and Tax

A superannuation split under a court order is not a taxable event. The transfer of super between funds as part of a splitting order does not trigger income tax or CGT. The receiving spouse takes on the funds under the same preservation rules and tax components (taxable and tax-free components) as the original member.

However, contributions made to super after the split are subject to the receiving spouse's own contribution caps — the standard A$30,000 concessional cap and A$120,000 non-concessional cap.

The ACT After-Divorce Checklist includes a tax reporting worksheet that maps every post-divorce tax obligation — from CGT rollover documentation to MLS threshold checks.

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