Sharing is caring – Tomaras and the substitution of tax debtors

Marriage can be a beautiful bond between two people. A promise between the two to join their lives. Their souls…

…and all of their tax debts, according to Commissioner of Taxation v Tomaras & Ors (2018) HCA 62, where the High Court confirmed that the Federal Circuit Court had jurisdiction to make orders altering the property interests of parties to a marriage by substituting one party for the other party as sole debtor to the Commissioner of Taxation (Commissioner) in respect of income tax liabilities owed by the first party.

Mr and Mrs Tomaras married in 1992 and separated in 2009. During their marriage the Commissioner issued several notices of assessment to Mrs Tomaras for various income tax liabilities, none of which were objected to or paid. The Commissioner obtained a default judgment against her but failed to enforce it. In November 2013, Mr Tomaras was declared bankrupt.

In December 2013, Mrs Tomaras commenced proceedings in the Federal Circuit Court against her ex-husband seeking orders for the alteration of property interests under section 79 of the Family Law Act 1975 (Act), including, pursuant to subsection 90AE(1)(b) of the Act, an order that Mr Tomaras be substituted as the sole debtor to the Commissioner in respect of her income tax liabilities.

Although not agreeing to make that order in this instance, the High Court confirmed the jurisdiction of the Federal Court to make such an order provided that the criteria stipulated under the Act were met.

The case serves as a reminder that it cannot be assumed that liability for taxation debts will remain with the original debtor when it comes to family law property settlement agreements. Parties should consider the possibility of substitution of tax liabilities, if appropriate, when negotiating and finalising these agreements.

To discuss this further, please contact:

Lisa Hunt
Principal
T: 03 5226 8584
E: lhunt@ha.legal

 or

Rod Payne
Principal
T: 03 5226 8541
E: rpayne@ha.legal