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Tomaras & Tomaras And Anor And Commissioner Of Taxation [2017] FAMCAFC 216

 
Tomaras & Tomaras And Anor And Commissioner Of Taxation [2017] FAMCAFC 216

 

Quick Summary:

 

  • The Applicant and the Respondent were married from 1992 to 2009.
  • During the marriage the Commissioner issued an assessment against the Mrs Tomaras with respect to income tax and Medicare levies.
  • In November 2009, the Commissioner obtained a default judgement against the Ms Tomaras.
  • In November 2013 Mr Tomaras became bankrupt.
  • In December 2013, the Ms Tomaras commenced proceedings in the Federal Circuit Court seeking an order for alteration of property interests pursuant to s79 of the Family Law Act 1975.
  • In February 2016, the Commissioner was granted leave to intervene in those proceedings.
  • Ms Tomaras sought an order pursuant to s90AE(1)(b) of the Family Law Act 1975 to substitute the Mr Tomaras for herself as the debtor, thus making Mr Tomaras solely liable to the Commissioner of Taxation for his ex-wife’s tax debt.
  • Purdon-Sully J referred the question to the Full Court of the Family Court for a determination on the question of law.
  • The Full Court found that the Court has the power to make an Order binding on the Commissioner, but:

 

  1. any such Order needs to direct the Commissioner to substitute, so that the original debtor doesn’t lose rights of objection; and
  2. the recovery prospects of the debt must be considered whenever it makes such an Order.


Article Summary:

 

This recent decision of the Full Court of the Family Court has confirmed that a substitution order made by the court on a third party will be binding even on the Commissioner of Taxation. Further, the decision suggests where such a substitution order is made against the Commissioner of Taxation, the substituted spouse would inherit the same rights of object and appeal.

The Applicant and the Respondent were married from 1992, until they separated in 2009. During this period the Commissioner issued an assessment against the Applicant wife for income tax and the Medicare levy.

In November 2009, the Commissioner successfully obtained default judgement against the Applicant wife. Four years later, in November 2013 the Respondent husband became a bankrupt. Subsequently, the Applicant wife commenced proceedings in the Federal Circuit Court seeking an order for alteration of property interests pursuant to s79 of the Family Law Act 1975.

In February 2016, the Commissioner was granted leave to intervene in those proceedings, in which the Applicant wife sought an order pursuant to s90AE(1)(b) of the Family Law Act 1975 to substitute the Respondent husband for the Applicant wife as the debtor, thus making the Respondent husband solely liable to the Commissioner of Taxation for her tax debt.

Purdon-Sally J pursuant to s94A(3) of the Family Law Act 1975 referred the question of law to the Full Court of the Family Court.

The Commissioner sought argue that s90AE was expressed in general terms, thus according to the presumption in Bropho v State of Western Australia the Commonwealth is not bound. However, Thackeray and Strickland JJ found that s90AE did not impose an obligation or a restraint on the Commissioner, thus the presumption did not apply.

In reaching such a conclusion, the majority found that s90AE can only impose a benefit on the Commissioner since:

  • a more wealthy spouse may become solely liable, thereby increasing the prospects of recovery;
  • both spouses may become liable, thus providing remedies for recovery which would be unavailable;
  • an order could not be made if it was foreseeable the order would result in the debt not being paid; and
  • the court may make an order as it considers just for the payment of the reasonable expenses of the creditor.

The Commissioner sought to advance arguments on the basis the presumption did apply. However, the majority having reached a contrary conclusion, only discussed the Commissioner arguments which supported the proposition that s90AE does not evince a legislative intention to bind the Crown.

One of the arguments raised by the Commissioner was that construing s90AE to permit tax debts to be transferred between spouses could not operate to transfer the objection, review and appeal rights associated with the tax debt. Thackeray and Strickland JJ, in rejecting this argument recognised that s14ZL of the Taxation Administration Act 1953 expressly confers the rights of objection upon “a person who is dissatisfied with an assessment, determination, notice or decision”. Accordingly, as this recognises a wider class of individuals, there should be no practical restriction upon allowing a substituted party to receive all rights of the person in whose place they have been obliged to stand.

Aldridge J as the minority agreed with the orders proposed by Thackeray and Strickland JJ, but made additional comments. Aldridge J considered that s90AE hindered the Commissioner as it changed its rights at law.

Furthermore, Aldridge J recognised that s175A of the Income Tax Assessment Act 1936 confers the rights of objection and appeal to a ‘taxpayer’, which pursuant to s6 of the Income Tax Assessment Act 1936 is “a person deriving income or deriving profits or gains of a capital nature”. Accordingly, ‘as these phases identify the person entitled to object as the earner of the income, profits or gain’ they do not accommodate the substitution of one spouse for the other as the “taxpayer”.  

Posted in: Tax & ATO News Australia at 06 November 17

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Author: David Hughes

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