NOBES & NOBES
[2006] FMCAfam 310
•22 June 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| NOBES & NOBES | [2006] FMCAfam 310 |
| FAMILY LAW – Property – enforcement of property orders. |
| Family Law Act 1975 |
| Darin Nominees Pty Ltd & Ors v Franklins SelfServe Pty Ltd [1999] NSWCA 209 Javes & Dwyer (1979) FLC 90-675 |
| Applicant: | MICHAEL NOBES |
| Respondent: | REBECCA NOBES |
| File number: | SYM 3455 of 2006 |
| Judgment of: | Sexton FM |
| Hearing date: | 26 April 2006 |
| Date of last submission: | 12 May 2006 |
| Delivered at: | Sydney |
| Delivered on: | 22 June 2006 |
REPRESENTATION
| Solicitors for the Applicant: | Meyer Pigdon |
| Counsel for the Respondent: | Mr R Hanrahan |
| Solicitors for the Respondent: | Wood Marshall Williams Lawyers |
ORDERS
That Order 4 of Orders made 26 April 2006 be discharged.
That the wife forthwith pay to the husband:
(a)The sum of $14,067.00, being the amount outstanding to the husband for capital gains tax payable on the sale of the property known as 62 Thiess Drive, Albany Creek; and
(b)Accrued interest on $14,067.00 calculated in accordance with the Family Law Rules from 2 March 2006 until the date of payment.
That unless costs are otherwise agreed, the matter be adjourned to
24 July 2006 at 10.00a.m. for hearing on the question of costs.
That the husband file and serve an affidavit in relation to the question of costs by no later than 3 July 2006 and the wife file and serve an affidavit in response by no later than 10 July 2006.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT sYDNEY |
SYM 3455 of 2006
| MICHAEL NOBES |
Applicant
And
| REBECCA NOBES |
Respondent
REASONS FOR JUDGMENT
Introduction
The husband seeks to enforce property orders made by the Family Court of Australia by consent on 5 May 2004 [“the Orders”]. The wife says she has already complied with the Orders. The husband did not proceed with the enforcement application in accordance with and as required by the Federal Magistrates Court Rules 2001. However, as both parties sought to proceed with the husband’s application on its first return date, the matter proceeded. The husband claims that the wife owes him $15,063.40 and in addition seeks costs of enforcement in the sum of $5,500.00.
May 2004 Orders
Order 1-4 inclusive of the Consent Orders made 5 May 2004 relate to the parties’ obligations in relation to the sale of a property held in the husband’s sole name at 62 Thiess Drive, Albany Creek (the Albany Creek property). There is a dispute between the parties as to the meaning of Order 4 of those Orders.
Orders 1- 4 of the property Orders of 5 May 2004 read as follows:
1. That the husband do all things and sign all documents as necessary to forthwith list for sale and sell the property known as 62 Theiss Drive, Albany Creek, being the whole of the land comprised in Certificate of Title Folio Identifier 18183059Lot 551 of Registered Plan 815191 (“The Albany Creek Property”) in accordance with Schedule A which is intended to form part of these orders.
2. That within 7 days of settlement of sale of the Albany Creek property the parties do all things to attend at a Westpac Branch and sign all documents necessary to open a joint signatory account identified as the capital gains account.
3. Upon settlement of the sale of the Albany Creek property the proceeds be distributed as follows and in the following order of priority:
3.1 To pay all legal fees, agent commission, auction and other expenses associated with the sale;
3.2 To pay all monies required to discharge the mortgage to Westpac secured by the property being mortgage number 702836121;
3.3 To deposit into the capital gains tax account, an amount to pay the capital gains tax as is assessed relating to the sale of the Albany Creek property, the sum of $26,000.00.
3.4 To pay the balance to the wife.
4. That the parties be restrained from withdrawing funds from the capital gains account referred to in 3.3 above, other than for the payment of the capital gains tax obligation relating to the sale of the Albany Creek property by the husband and that the husband lodge his tax return at the end of the financial year following the sale as promptly as possible and the parties do all things to release funds to pay from the gains account the amount assessed by the Commissioner of Taxation for that year within 7 days of such assessment issuing. The balance if any of the gains account is to be paid to the wife. In the event of a shortfall capital gains tax in the fund to meet the tax, the wife is to pay to the husband an amount equal to that shortfall as assessed, within 7 days of such assessment issuing.
Capital Gains Tax is not defined in the Orders. In written submissions both parties’ legal representatives refer to the ATO Guide to Capital Gains Tax 2005 which states:
Capital Gains Tax (CGT) is the Tax that you pay on any capital gain you included on your annual income tax return. It is not a separate tax, merely a component of your income tax.
Ms Cox for the husband submits that the Australian Taxation Office provides information on its website as to what is capital gains tax and what rate of tax has to be paid. This information, which is not disputed by the wife, provides that a taxpayer is taxed on the net capital gain at the taxpayer’s marginal tax rate. Given the husband’s taxable income for the 2005 taxation year, as assessed, was $159,785.00, in accordance with the ATO’s Income Tax Rates in the 2005 financial year, he had a marginal tax rate of 47%.
The parties agree on the following facts:
a)The Albany Creek property was registered in the sole name of the husband.
b)The Albany Creek property was purchased on 23 June 1998 and sold on 24 September 2004.
c)In accordance with Order 2 of the Orders the parties opened a joint account at Westpac Bank identified as “the capital gains account.”
d)Upon settlement of the sale of the Albany Creek property, after distributions in accordance with Order 3 of the Orders, an amount of $26,000.00 was deposited to the capital gains account in accordance with Order 3.3.
e)In accordance with Order 4, the husband lodged his tax return following the end of the 2005 financial year and received his taxation assessment for that year from the Commissioner of Taxation in October 2005.
f)The Commissioner for Taxation assessed the net capital gain on the sale of the Albany Creek property at $67,055.00.
g)The wife paid the husband the sum of $17,447.85 being $5 more than the taxation assessed on the whole of the husband’s income for the 2005 financial year according to his Taxation Assessment for the 2005 financial year. The wife did not provide an explanation as to why the figure paid was $5 more than the assessed figure of $17,442.85.
h)The husband paid the Australian Taxation Office the amount he was assessed to pay in the Notice of Assessment for the 2005 financial year by the due date for payment, 21 March 2006.
According to the husband, on 24 September 2004 the parties entered into a written agreement, Annexure K to the husband’s affidavit, to transfer the monies held in the Capital Gains Account to a fixed term deposit for a period not exceeding 12 months, with all interest to be split evenly between the parties. The wife does not take issue with this assertion.
The husband’s taxation assessment for the 2005 financial year, Annexure L to his affidavit, states that the husband’s taxable income for the 2005 financial year was $159,785 “includes $67,055.00 Capital Gains”. The Notice of Assessment shows the actual amount of taxation payable by the husband for the 2005 financial year was $17,442.85, taking into account:
a)Tax on taxable income $60,810.95dr
b)PAYG withholding credits $29,662.93cr
c)Tax Offsets and Other Credits $13,250.31cr
d)FTB reconciliation credit amount $454.84cr
Issues
The Court is asked to determine whether or not the wife has complied with her obligations pursuant to Order 4 of the Orders. In essence, the question is whether the amount to be paid from the capital gains account is the amount of tax payable by reference only to the capital gain on the Albany Creek property or whether it is the outstanding tax payable by the husband on the whole of his taxable income for the 2005 financial year. This taxable income includes the net capital gain on the Albany Creek property of $67,055.00.
Order 3.3
Order 3.3 of the Orders provides that from the sale proceeds of Albany Creek, an amount must be deposited to the “capital gains tax account” “an amount to pay the capital gains tax as is assessed relating to the sale of the Albany Creek property”. In my view, the clear intent of this Order was to ensure an amount of money was quarantined from the net sale proceeds of the Albany Creek property to meet the capital gains tax liability arising from the sale. The difficulty arises in relation to Order 4 of the Orders, which on a plain reading of the Order, does not follow from Order 3.3.
Order 4
I have already set out the terms of Order 4 of the Orders. I now set out the obligations of the parties set out in Order 4 of the Orders:
a)The parties cannot withdraw funds from the Capital Gains Account referred to in 3.3 other than for the payment of the husband’s capital gains tax obligation relating to the sale of the Albany Creek property.
b)The husband must lodge his tax return at the end of the financial year in which the Albany Creek property is sold, as promptly as possible.
c)The parties must release funds to pay from the Capital Gains Account the amount assessed by the Commissioner of Taxation for that year within 7 days of such assessment issuing.
d)The balance, if any, of the Capital Gains account is to be paid to the wife.
e)“If a shortfall Capital Gains Tax in the fund to meet the tax”, the wife is to pay to the husband an amount equal to the shortfall as assessed.
The husband says he received his Notice of Assessment for the 2005 financial year from the Australian Taxation Office in October 2005. He says he asked his accountant to calculate the actual CGT relating to the sale of the Albany Creek property. His accountant sent him the calculation dated 13 October 2005, Annexure N to his affidavit, showing tax on a capital gain of $67,055.00 as $31,515.00, using the husband’s marginal tax rate of 47%. The husband says on or about
19 October 2005 he faxed a copy of his Notice of Assessment and the calculation from his accountant to the wife. The husband says on
26 October 2005 he telephoned the wife and had this conversation with her:
Husband: The capital gains tax is $31,515.00
Wife:Yes, OK, no worries, I’ll write you a cheque for that amount.
The husband says the parties arranged for the husband to collect the cheque at their son’s confirmation on 12 November 2005. The wife gave the husband a cheque made out to the Australian Taxation Office in the sum of $31,515.00. The husband says he told the wife the orders say the money should be made out to him not to the ATO. The husband says he told the wife he had already paid his tax bill, although he admitted in his affidavit he had not done so. He says he wanted to invest the funds until his tax was due in March 2006. The husband says the wife told him she would have the cheque made out to the husband, but wanted to check first with a solicitor. The husband deposes to correspondence between the parties’ solicitors. By letter dated
15 December 2005, the wife’s solicitors told the husband’s solicitors the wife was only willing to pay $17,442.00 plus half the interest earned on the amount deposited in the capital gains account (which became the Term Deposit) after the sale. After first sending a cheque to the husband’s solicitors in the sum of $17,447.85 made payable to the ATO the wife’s solicitors sent a subsequent cheque in the same amount made payable to the husband and received by the husband’s solicitors on 1 March 2006. As previously noted, there is no explanation as to why the cheque amount is $5 more than the amount of tax assessed by the ATO for the husband’s 2005 financial year.
The difficulty with the parties’ obligation in Order 4 set out above at paragraph 11(c) is that the Commissioner for Taxation does not assess the capital gains taxation arising on the sale of a property sold in any financial year separately from the taxation payable on the whole of the taxable income of the taxpayer in the financial year in which the property is sold. The capital gain on the property sold will only be a component of the taxpayer’s income in that financial year and the taxpayer’s taxation liability for the year will be assessed on the whole of the taxpayer’s taxable income. The Taxation Commissioner’s assessment for the financial year takes into account other factors unrelated to the capital gain on the sale of the property as set out in paragraph 8 of these Reasons. I find from a reading of Orders 2 and 3 of the Orders that it was the intention of the parties for the wife to share in the liability incurred by the husband for the capital gains tax arising from the sale of the Albany Creek property. The wife and husband were also to share in the costs of sale and the discharge of mortgage. Order 4 refers to “the amount assessed by the Commissioner of Taxation for that year”. These words do not reflect the intention set out in Orders 2 and 3. The husband’s legal representative conceded at hearing, that this part of Order 4 is poorly drafted. The drafting did not appreciate what the Notice of Assessment would state. The Notice would never specifically assess the taxation payable on the capital gain, only the net amount of the capital gain.
Mr Parisi for the wife, refers, at paragraph 16 of his written submissions to the Court of Appeal decision of Darin Nominees Pty Ltd & Ors v Franklins SelfServe Pty Ltd [1999] NSWCA 209 where Powell JA said:
1. as a general rule, the meaning of a document such as a lease is to be sought for in the document itself;
2. the document is to be construed as a whole, the objective being so to construe the instrument as, if it be possible, to produce a consonant whole (see for example, Hume v Rundell (1824) 2 S & S 174, 177 per Leach V-C; Lloyd v Lloyd (1837) 2 My & Cr 192, 202 per Lord Cottenham LC)
3. if, in any case, it is clearly necessary so to do in order to avoid absurdity or inconsistency, then words may generally be supplied, omitted or corrected (Fitzgerald v Masters (1956) 95 CLR 420, 426-427 per Dixon CJ and Fullagar J)
4. should the context in which it appears in the instrument render the meaning to be attributed to some word or phrase doubtful, then the court which is called upon to interpret the instrument may admit evidence of surrounding circumstances in order to identify the meaning to be attributed to that word or phrase (see for example, Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989, 995-996 per Lord Wilberforce; D T R Nominees Pty Limited v Mona Homes Pty Limited (1978) 138 CLR 423, 429 per Stephen and Jacobs JJ; Burn Philp Hardware Limited v Howard Chia Pty Limited (1987) 8 NSWLR 642)
5. as a general rule, however, evidence of the parties’ negotiations, or of the parties’ subjective intentions, in relation to the instrument ought not to be received (see for example, Preen v Simmonds [1971] 1 WLR 1381, 1383-1385 per Lord Wilberforce; L.Schuler A.G v Wickman Maichine Tools Limited [1974] AC 235, 261 per Lord Wilberforce; Secured Income Real Estate (Australia) Limited v St. Martins Investment Pty Limited (1979) 144 CLR 596, 606 per Mason J (as he then was)).
Meaning of Orders 1 – 4
I find the orders concerning the Albany Creek property, construed as a whole, that is, Orders 1 – 4 of the Orders inclusive, have a clear meaning. The property must be sold, the liabilities relating to the property must be paid, and the balance of the sale proceeds must be paid to the wife. The difficulty with drafting the proposed orders before the sale of the property, was that neither the parties nor their legal representatives, would have been in a position to put a precise figure on the capital gains tax payable by the husband on the sale of the property. This is not an uncommon problem in cases in which investment properties are to be sold, but have not been sold at the time the Orders are entered. I am satisfied that the drafters attempted to set out the steps which had to be taken by the parties to ensure the parties shared in the burden of the capital gains tax debt. To find otherwise, in my view, leads to an inconsistency between Orders 3 and 4.
If the Court accepts the interpretation submitted by the wife, that is, that “the amount assessed by the Commissioner of Taxation for that year” refers to the taxation payable by the husband on the whole of his taxable income for that year, the wife would have had no control at all over the amount of that liability. The husband’s taxation liability for the year might have been significantly higher than the capital gains tax liability on the sale of the property, had he sold other property or shares or taken other financial decisions in that same year. To have made the wife share in the whole of the husband’s taxation liability for that financial year may have led to a serious injustice to the wife, as she would have had no control over the husband’s financial decisions in that year. The only reference to tax in Orders 1-4 of the Orders is to capital gains tax arising from the sale of the Albany Creek property. Order 3.3 is the mechanism for how the parties will provide for the capital gains taxation to be paid by the husband. I am satisfied that Order 4 sets out the obligations on the husband to find out as quickly as possible after the relevant financial year has ended what capital gains the Commissioner of Taxation has included in the husband’s income for that year so the taxation on that assessment can be paid. There is no reference to the husband’s taxable income for the 2005 financial year in the orders, only “the amount assessed by the Commissioner of Taxation for that year”. In my view, the “amount assessed” refers to the capital gains itself, not the tax payable on the capital gain.
Mr Parisi for the wife at paragraph 31 of his submissions submits that it is clear that Order 4 of the Orders required the funds in the Capital Gains account to be used to pay the husband’s capital gains tax obligation relating to the sale of the Albany Creek property. I agree with him. However, he then submits that the Capital Gains Account should be used to meet the husband’s taxation liability for the whole of the 2005 financial year. The Order however, only provides for payment of the capital gains tax liability, not the whole of the husband’s taxation liability. As it transpired in that financial year, the husband’s outstanding tax liability at the end of the 2005 financial year, given the manner in which he had conducted his financial affairs in that year, was less than the capital gains tax liability arising from the sale of Albany Creek. That circumstance, in my view, was not contemplated by the Order, and is not relevant to the implementation of the Order.
Mr Parisi complains that the husband has asked his accountant to prepare a written calculation of the tax payable on the capital gains part of his income for the 2005 financial year. He says, and I agree that such a calculation by an accountant is not provided for in the Orders. However, in the absence of any order as to how the tax on the capital gain is to be calculated, in my view, the husband took the only sensible course.
I find it unnecessary to look behind the terms of the Consent Orders to clarify the meaning of the Orders. The wife’s Counsel refers to the Full Court of the Family Court decision in Javes & Dwyer (1979) FLC 90-675 in which the Full Court held:
…the meaning of the order must be gleaned from the order itself, and extraneous evidence may be looked at to interpret the order only if that meaning is not clear from the words of the order itself.
Conclusion
I am satisfied Order 4 has been drafted inaccurately, but I find its meaning clear, when considered in conjunction with Orders 1-3 of the Orders. Order 3 states that the parties must deposit into the Capital Gains Account an amount to pay the Capital Gains Tax as is assessed relating to the sale of the Albany Creek property. Order 3 does not refer to the funds being used to meet the husband’s taxation liability for the 2005 financial year. There are other factors referred to in the husband’s Taxation Assessment which are unrelated to the sale of the Albany Creek property. As submitted by the husband’s legal representatives, “the Notice does not isolate the tax relating to the sale of the Albany Creek property.”
It is unfortunate the terms of Order 4 do not set out each necessary step to be taken to ensure the parties only share in the payment of the capital gains taxation liability. However, on a careful reading of the Orders, I am satisfied the only interpretation which is consistent with the clear intention of the parties in Order 3 is the husband’s interpretation.
The $15,063.40 claimed by the husband in his application is calculated as follows: $31,515.00 less $17,447.85 already paid, plus interest at the rate of 10.25% per annum on the amount of $31,515 for the period
12 November 2005 until 1 March 2006, being $964.65 and interest on the balance of $14,067.15 from 1 March to 9 March 2006 at the same rate, being $31.60.
In accordance with the Orders, I find the parties should have paid the amount accumulated in the Term Deposit [the Capital Gains Account] to meet the husband’s capital gains tax obligation. The shortfall between the amount held in the Term Deposit and the $31,515.00 should have been paid by the wife to the husband from her own funds. The parties agreed to delay payment beyond the period provided for in the Orders to 12 November 2005. It is common ground that the wife gave the husband a cheque made out to the ATO in the sum of $31,515.00 on 12 November 2005 and the husband returned the cheque to her, telling the wife he had already paid the tax to the ATO and requesting the cheque be made payable to him. The husband now concedes this was not true. The Orders do not direct the wife as to whom the cheque should be made payable and I find the wife’s actions reasonable to that point.
I find the husband acted unreasonably in giving the wife a false reason for changing the payee on the cheque. I therefore do not propose to make an order for the wife to pay interest on the amount unpaid for the period 12 November 2005 until the husband received a cheque for part of the due amount on 1 March 2006. The husband was able to pay his tax as assessed by the due date and suffered no penalties. The wife will pay interest from 2 March 2006 on the amount outstanding to the husband as at that date.
Both parties sought an order for costs in relation to the application. The wife’s counsel submits that she should have the opportunity to file further material on the question of costs before the Court makes a determination. I will give both parties that opportunity.
I certify that the preceding twenty-six (26) paragraphs are a true copy of the reasons for judgment of Sexton FM.
Associate: Collette McFawn
Date: 22 June 2006
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