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.