In the decision of Commissioner of Taxation for the Commonwealth of Australia v Tomaras & Ors [2018] HCA 62 the High Court unanimously decided in favor of allowing a wife to assign her tax debt of $256,078.32 plus General Interest Charge (GIC) to her husband.
In brief
The High Court considered whether s90AE(1)-(2) of the Family Law Act 1975 (Cth) (“the Act”) granted the court power to make orders in respect of the wife’s indebtedness to the Commissioner for taxation related liabilities and the husband be substituted for the wife as the debtor and therefore solely liable to the Commissioner for the debt.
The facts
- The first respondent (“the wife”) and the second respondent (“the husband”) married in 1992 and separated in 2009.
- During their marriage, the appellant (“the Commissioner”) issued various assessments requiring the wife to pay, among other things, income tax, the Medicare levy, penalties and the GIC. The wife failed to pay the amounts assessed and did not lodge objections to the assessments. On 12 November 2009, the Commissioner obtained default judgment against the wife.
- On 5 November 2013, the husband was declared bankrupt.
- In December 2013, the wife commenced proceedings against the husband in the Federal Circuit Court of Australia. The wife sought an order pursuant to s 90AE(1)(b) that, in respect of the wife’s indebtedness to the Commissioner for certain taxation related liabilities plus GIC, the husband be substituted for the wife as the debtor and the husband be solely liable to the Commissioner for the debt.
- In February 2016, the Commissioner was granted leave to intervene in the proceedings
Decision
The Court unanimously held pursuant to s 90AE(1) of the Act (that confers power on the court to make an order) that, in relation to a debt owed to the Commonwealth by a party to a marriage, the Commissioner be directed to substitute the husband for the wife in relation to that debt.
Key principles
In making an order under s90AE(1), the requirements of s90AE(3) below must be satisfied before one party could be substituted for another party in relation to a debt:
- making of the order is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage;
- 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; and
- without the court being satisfied that, in all the circumstances, it is just and equitable to make the order.
