165/580 Hay Street
Perth WA 6000
Ph 08 6557 5888

High Court rules that tax debts may be shifted between spouses

In the 13 December 2018 decision in Commissioner of Taxation v Tomaras [2018] HCA 62 the High Court of Australia held that the Family Court has the power to order the Commissioner for Taxation to substitute one party to a marriage for the other in relation to a debt owed to Commonwealth for income tax.

However, this is not an order the Family court is likely to make frequently.

A few things worth knowing about the decision

  1. Whilst the Family Court has the power to make a substitution order pursuant to s 90AE(1) of the Family Law Act 1975 (Cth) the power should not be exercised unless specific conditions are met.
  2. To exercise the power the Family Court must be satisfied that:
    • The making of the order is reasonably appropriate and adapted, to effect a division of property between the parties to the marriage;
    • It is not foreseeable at the time the order is made that to make the order would result in the result in the debt not being paid in full; and
    • In all the circumstances it is just and equitable (fair) to make the order.
  3. Whilst this represents a significant shift, the conditions outlined in the decision are onerous.
  4. The decision is not likely to be a mechanism for non-payment of taxation debt.

Read more about the decision here.