Does a wedding ring entitle you to avoid paying tax?
A recent decision by Australia’s High Court has affirmed the powers of the Federal Circuit Court and Family Court under section 90AE(1) of the Family Law Act 1975.
In Commissioner of Taxation v Tomaras, a person sought to have their $250,000 tax debt transferred to their spouse in a property settlement. In this case, their spouse was bankrupt.
Taxpayers could end up being $250,000 out-of-pocket as result of the decision.
Considering section 90AE(1), the High Court found that the lower courts do have jurisdiction over debts owed to the Commonwealth, as well as the power to order the Taxation Commissioner to ‘substitute’ spouses’ liability for tax debts.
However, the Court said that substitution orders should only be made where it is “just and equitable to do so”. Substitution orders will not be made if they are likely to result in debts not being paid in full.
As such, debt-shifting in property settlements will be rare, and only available where the other spouse is able to pay the debt.
So NO, except in extraordinary circumstances, you will NOT be able to use the Family Law Act to avoid paying tax.
For further information about the case, see this ABC News article.
Financial matters between spouses are complicated, and you need to obtain the best advice.
Martin Bullock Lawyers has Family Law expertise in Parramatta going back 60 years. We can help you to obtain the best financial settlement, including what you and can’t do in relation to various forms of taxation.
If you’d like to discuss any financial matter or property settlement, then give Greg Martin or Jacqueline Wainwright a call on 02 9687 9322.