18 Dec 2018

The power of the Court to assign a tax debt of one spouse to another pursuant to Part VIIIAA of the Family Law Act 1975 (Cth) (‘FLA’) was recently considered by the High Court in the case of Commissioner of Taxation for the Commonwealth of Australia v Tomaras & Ors [2018] HCA 62.

1. BACKGROUND
The husband and wife, the first and second respondents, married in July 1992 and separated in July 2009. During the parties’ marriage, the Commissioner issued several assessments requiring the wife to pay income tax, Medicare levies, penalties and general interest. The wife did not pay the amounts assessed, and did not lodge objections to those assessments. In late 2009, the Commissioner obtained a default judgment against the wife in the amount of $217,669. The wife did not subsequently pay the judgment debt and the Commissioner failed to enforce it.

In November 2013, the husband became bankrupt. One month later, the wife commenced proceedings against the husband in the Federal Circuit Court seeking orders for the alteration of property interests under s 79 of the FLA. She sought, pursuant to s 90AE(1)(b) FLA, that the husband be substituted as the sole debtor to the Commissioner in respect of her taxation liabilities including general interest charged.

In February 2016, the Commissioner was granted leave to intervene in the proceedings.

2. RELEVANT LEGISLATION
Pursuant to section 79 of the FLA, the Court has the power to re-distribute matrimonial property between the parties to a marriage. The Court also has the power to bind third parties to the proceedings in particular circumstances. Section 90AE of the FLA provides the Court with the power to make orders directed to a creditor of one party to substitute the other party in relation to a specific debt owed to that creditor, provided that the criteria listed in s 90AE(3) and s 90AE(4) are met.

3. CASE STATED
At the first instance, Purdon-Sully J asked a question of law for the opinion of the Full Court of the Family Court:

Does s 90AE(1)-(2) of the FLA grant the court power to make order 8 of the final orders sought in the amended initiating application of the wife?
Order 8 of the orders sought by the wife stated as follows:

Pursuant to section 90AE(1)(b) of the Family Law Act 1975 (Cth), in respect of the wife’s indebtedness to the Commissioner of Taxation for the Commonwealth of Australia [for] taxation related liabilities in the amount of $256,078.32 as at 9 August 2016 plus General Interest Charge (GIC), the husband be substituted for the wife as the debtor and the husband be solely liable to the Commissioner of Taxation for the said debt.

4. THE FULL COURT ANSWERED THE QUESTION IN THE AFFIRMATIVE
The Full Court answered in the affirmative,however this was subject to the proviso that s 90AE(1) confers power only to make an order that the Commissioner be directed to substitute the husband for the wife in relation to the debt owed by the wife to the Commissioner.
The Commissioner appealed to the High Court.

5. DECISION OF THE HIGH COURT
The High Court unanimously upheld the decision of the Full Court noting that s 90AE(1) conferred power on the court to make an order that the Commissioner of Taxation be directed to substitute the husband for the wife in relation to the taxation liability.

The High Court further held:
“it [was] otherwise inappropriate to answer the question without it being found, or agreed, that, within the meaning of s 90AE(3), the making of the order is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage, and it is not foreseeable at the time that the order is made that to make the order would result in the debt not being paid in full; and without the court being satisfied that, in all the circumstances, it is just and equitable to make the order.”

Written by Eliza Fitzgerald, Solicitor, Family Law.

*This is general information only, and does not constitute specific legal advice. Please consult one of our experienced Legal Team for specific advice relevant to your situation.

100 years of Supporting West Australians

"Always fast and thorough service. Thank you"

Sitka Pil

My circumstances at the time I made contact with HHG were dire following my argument being rejected by two no win no fee firms. Following my initial meeting with HHG's employment law team I was left feeling extremely positive by the response and concern shown by HHG in regards to their support of my argument along with their preparedness to pursue an outcome on my behalf.

I accept the fact that nobody really wins in these cases (mental health/ workplace) however the end result was what would be considered most favourable and far in excess of what would have been achieved had I not sought the advice from HHG.

I have no hesitation in recommending HHG to anyone caught up in the messy circumstances I found myself in at the time.

Great advice and five-star commitment to their client!!"

Nathan Lynch

"Thank you for such great assistance with the transaction of Flying Domestics on behalf of Lorna Good. It has been such a pleasure to work with the HHG Legal Group and I look forward to working with you in the future."

Jim Goodwin

"Simon Creek and his team were at all times empathic, professional and confident.  My matter needed to be addressed within a pressing time frame, and their availability at short notice and contact after hours was much appreciated.  It caused me considerable stress, but having such a thoroughly reliable and competent team to call on helped me to feel in control. Although I hope not to need their services again in future, I would be confident in doing so!"

Dr Lana Bell

"A good outcome is what we can expect.  A great outcome is a sign of a company which does the very best for their clients. A very big thank you to Daniel Morris for showing empathy towards my small and much needed legal action.

To HHG Legal Group, thank you for a great outcome.  I would recommend your company to anyone seeking legal services."

Jan Atkinson

"Your support this morning was amazingly kind, not to mention your totally reassuring competence, knowledge and wisdom that you used on my behalf.  It was extremely reassuring to have your knowledgeable support, and I particularly appreciated your real and obvious kindness to me. It means so much at a very difficult time. I'm so grateful to you."

Family Law Client

"Janene was very professional and we established a good rapport quickly. The subject of death and wills can be quite confronting to deal with, however, Janene's approach was soft and accommodating."

Lynette Livesey

"A big thank you to HHG for their professional service, continued support, and wide range of legal knowledge. Our clients have given us nothing but kind words regarding HHG Legal Group and so we have no hesitation in referring and recommending Simon Creek and HHG Legal Group for their outstanding services and legal expertise."

Nigel Plowman, Director at McKinley Plowman & Associates

"Simon is a friendly and practical legal advisor. I have received great feedback from the clients I have referred to him and his team at HHG Legal Group."

Richard Beal, Director at BDO

"Over the last few years, I have been impressed by Simon’s legal ability, management skills, entrepreneurial spirit, personal integrity and people skills. He appears to be that rare breed of lawyer – both knowledgeable and commercial."

Michael Malone, Founder of iiNet

"Our family has been a client of HHG Legal Group over many years.  Business has included drawing up of wills for three generations and preparing of probate for my father in law. I would have no hesitation in recommending HHG Legal Group to anyone requiring such services."

Bernice Climie

"You should be congratulated for the manner in which your staff address clients and we found our dealings with your company, once again a very pleasant experience and we would like to truly thank you for your efforts."

Steve Harvey and Jane Powell

"HHG Legal were absolutely fantastic. Extremely responsive and brought calm to our chaotic family situation through their knowledge and caring attitude. Extremely professional from our very first contact with them and they expertly guided our family though the required legal process over almost a 12 month period."

Amanda Williamson

"Fantastic team! They really care about their client. Tim Colcutt is a 'go that extra mile' guy who gives his client his all. I can't recommend HHG and Tim enough."

Kerry Samson

"I had a fantastic lawyer in Anne Hurley. She helped me out a great deal with good, sound advice in a friendly, professional manner. First class, thanks Anne"

Graeme Hammond

"Marine Plant Systems has been working with HHG Legal Group for a few years now and they continually provide first-class service. Their professional advice has been invaluable to our company."

Carolin Grimm - Marine Plant Systems

"We were kept up to date at all times. Pricing was always updated over the time period so we remained "in budget". Personal access to someone whenever I had questions. All in all a great experience without too much fuss."

Rosslyn Tasker - COO AltusQ Pty Ltd

"Good service you can count on."

Miles Lee

"HHG Legal Group has provided outstanding support as I have taken the journey of buying a business, their professionalism is beyond reproach. Their assistance throughout the Due Diligence process has been invaluable, I would fully recommend them."

Mark Armitage

"Very friendly and efficient service - what a pleasure working with Anne."

Jacques Taylor

"I highly recommend Daniel from HHG Legal Mandurah. When dealing with a complicated legal property matter recently I was extremely impressed by Daniel's honesty and integrity and the legal advice I received. I am very happy with the service from HHG Legal."

Tony Walker