The Family Court can direct the Commissioner of Taxation to substitute husband for wife in relation to tax debt

The Family Court can direct the Commissioner of Taxation to substitute husband for wife in relation to tax debt
In Tomaras&Tomaras and Anor and Commissioner of Taxation [2017] FamCAFC 216 the Full Court of the Family Court of Australia considered whether section 90AE of the Family Law Act 1975 (Cth) (the Act) conferred power on a court to make an order that the husband be substituted for the wife as debtor to the Commissioner of Taxation for the sum of $256,078 plus interest.

The Commissioner for Taxation relied on Bropho v State of Western Australia [1990] HCA 24 arguing that the Court must presume that general statutory provisions like s 90AE do not bind the Crown.

Thackray& Strickland JJ found the presumption that the Crown is not bound by a statute applies only to provisions which impose an obligation or restraint upon the Crown.  In their view, it was reasonable that section 90AE benefits the Crown since:

  • It would transfer responsibility for paying a tax liability from a person who could not afford to pay it to someone who could;
  • Instead of one spouse being liable to pay a tax liability, both spouses may be held liable;
  • While an order might be made leaving the less wealthy spouse to pay the tax liability, such an order could not be made if the less wealthy spouse could not afford to pay; and
  • The Act permits the court to make such orders it considers just for the payment of the reasonable expenses of the creditor incurred as a necessary result of the order.

Thackray& Strickland JJ also found that section 90AE could only operate to the detriment of the Crown if the court made an order that:

  • Relieved a spouse of their obligation to pay tax which they would have paid if the order had not been made; and
  • Instead imposed the obligation to pay tax on a spouse who, although appearing to be able to pay the liability, was in fact unable to pay for some unforeseeable reason.

Accordingly, Thackray& Strickland JJ determined that the possibility that the Commissioner for Taxation would be adversely affected by an order under section 90AE does not arise by operation of the Act itself but only by an unforeseeable event that could not reasonably have been anticipated by both the Court and the Commissioner for Taxation.