Family law: September 2016

Property – exclusion of future tax debt from pool upheld but error found in treatment of debt under s 75(2)

In Rodgers [2016] FamCAFC 68 (4 May 2016) the parties had run a successful tourism business. The wife was to retire from the business and the husband (who was to retain it) appealed to the Full Court (Thackray, Ainslie-Wallace & Murphy JJ) against Crisford J’s rejection of his argument at trial that the future tax debts of an entity the parties controlled should be deducted from the $4.9m pool. They were to arise as a result of Division 7A loans of $1.5m which, if forgiven, would trigger a large tax liability (at [11]).

The Full Court said (at [15]): ‘[T]he husband contended that … $517,000 should be adopted as the liability … in … recognition of the fact that the postulated figures contained differing assumptions … [and that] that figure “is less than the number that will probably … be paid” … [implying] that if the liability was to be taken up by her Honour … the quantum of that liability could not have been precisely ascertained, even if the calculated amounts of the potential liability were confined by the assumption that the inter-company loans would not be forgiven and the tax consequently crystallised.’

Finding no error of law in Crisford J’s exclusion of the debts from the pool, the Full Court cited Campbell & Kuskey (1998) FLC 92-795 and said (at [41]) that ‘[l]iabilities that are vague, uncertain, unlikely to be enforced and the like might be treated differently because those circumstances might, in the circumstances of the particular case, render it unjust and inequitable for liabilities to be deducted’.

In allowing the appeal, the Full Court did find error in the trial judge’s decision to make a s 75(2) adjustment in the wife’s favour, saying (at [80]-[82]): ‘The evidence before her Honour did not allow her to arrive at a present-day value of the future taxation. Conversely, it was clear that none of the calculated sums would be payable immediately or in the future in any such sum… [T]he evidence is a long way short of providing the “actual figures” of which the Court spoke in Clauson [(1995) FLC 92-595] …[W]e cannot see that her Honour’s reasons pay due regard to these significant issues. Her Honour’s reasons do not reveal either a consideration of the impact in real terms of the mooted contributions assessment or any attempt to give numerical meaning either to the “impost” or the “management” of the taxation to which she refers‘.