A lot of poorly made jokes begin with “there are two certainties in life…” When it comes to family law proceedings, you can be certain that your taxation returns will come under the microscope.
This is because the Federal Courts, and in this context the Federal Circuit and Family Court of Australia, have a duty to protect the Commonwealth’s revenue. See, P and P Evasion (1985) FLC 91- 605, Commissioner of Taxation v Worsnop (2009) 40 Fam LR 552.
PREPARATION OF RETURNS
Taxation returns should be viewed as our yearly diary entry to the Australian Tax Office (“ATO”). We tell the government:
- What we earned;
- How we earned it;
- A limited insight into what we lost; and
- Our relationship status.
For both parenting and property proceedings, it is a record that will demonstrate how you say your financial life and your love life have faired.
If you have not disclosed appropriately in your taxation returns you may be faced with this simple question by the Court:
“So you say your taxation returns do not reflect accurately your income? Were you lying to the Australia Taxation Office then, or are you lying to me now?”
WHAT CAN HAPPEN?
The Court may report parties to the Australian Tax Office for inspection in relation to tax avoidance. See, Malpass v Mayson (2000) 27 Fam LR 288.
The Commissioner may intervene in proceedings and uplift documents in the Court file in relation to administering the Income Tax Assessment Act 1936 (Cth)/ Taxation Administration Act 1953 (Cth). See, Commissioner of Taxation v Darling (2014) 50 Fam LR 637.
The ATO (as either the Commissioner of Taxation, or the Deputy Commissioner of Taxation) has historically taken two paths to enter into family law proceedings as an intervenor:
- Through section 92. See, Deputy Commissioner of Taxation v Kliman (2002) 29 Fam LR 301;
- Through being a “person affected” under s.79A. See, Taxation, Deputy Commissioner of v McCauley (1996) 22 Fam LR 538..
The rights of the ATO, once joined, are the same as they would have been under existing rights at common law and in equity. They do not gain any new rights due to being a party under the Family Law Act. They are not given extra rights under section 79. They merely have their rights to pursue unpaid tax. See, Commissioner of Taxation v Worsnop (2009) 40 Fam LR 552
- A point of contention is the priority to which the Tax Office is entitled. Is it anything more than for the right to be “recognised, taken into account and balanced against the rights of the spouse?” See In the Marriage of Biltoft (1995) 19 Fam LR 82; Deputy Commissioner of Taxation v Kliman (2002) 29 Fam LR
TAX AVOIDANCE EXAMPLE:
In the case of Labella & Labella  FCCA 948, a husband had not filed his tax returns for almost a decade. The Federal Circuit Court of Australia (now referred to as the Federal Circuit and Family Court) ordered that the husband could not access his property distribution awarded to him until such time as he properly filed his taxation returns and paid off any taxation liabilities accruing. Further to that, his entitlement was to be held in unclaimed moneys until he paid his taxes.
If you are going through a separation and need assistance with dividing your assets or have questions as to how your taxation will be dealt with in a property settlement, please contact us on (02) 9688 6023 or click here to book a Free First Conference with an experienced Family Lawyer.
This is not legal advice.
This article was co-authored by Tim Robertson & Ben Woodward.