PRICE & PRICE

[2014] FamCA 1020

FAMILY COURT OF AUSTRALIA

PRICE & PRICE [2014] FamCA 1020

FAMILY LAW – PROPERTY – Where Consent Orders were made during the trial – where the evidence exposed potential deliberate non-compliance with Commonwealth tax legislation – referral to the Australian Taxation Office.

Family Law Act 1975 (Cth)
Income Tax Assessment Act 1936 (Cth)

APPLICANT: Ms Price

RESPONDENT: Mr Price

FILE NUMBER: BRC 10935 of 2011

DATE DELIVERED: 17 November 2014

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Forrest J

HEARING DATE:

20, 21 & 22 October 2014

Submissions received:
31 October and 7 November 2014

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Bunning of Counsel

SOLICITOR FOR THE APPLICANT: McLaughlin Lawyers

COUNSEL FOR THE RESPONDENT: Mr Hackett of Counsel

SOLICITOR FOR THE RESPONDENT: Worcester & Co

Orders

1. That the Principal Registrar provide to the Deputy Commissioner for Taxation the following documents:

   (a)the affidavits of Ms Price filed:

   ·2 December 2011;

   ·9 August 2013;

   ·2 October 2013,

   ·13 October 2013; and

   ·21 October 2014;

   (b)the affidavits of Mr Price filed:

   ·1 August 2012;

   ·9 August 2013; and

   ·13 October 2014;

   (c)the affidavit of Mr B filed 9 August 2014 (including its annexures);

   (d)the affidavit of Mr C filed 17 February 2014;

   (e)Exhibit A in relation to the admissibility of Mr B’s affidavit, namely the first valuation report of Mr C dated 13 July 2012;

   (f)Exhibit B in relation to the admissibility of Mr B’s affidavit, namely a bundle of correspondence;

   (g)Forrest J’s Reasons for Judgment dated 17 November 2014.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Price & Price has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: BRC 10935 of 2011

Ms Price

Applicant

And

Mr Price

Respondent

REASONS FOR JUDGMENT

1. The trial in this property adjustment dispute was listed for hearing by me over five days commencing on 20 October 2014. The trial commenced on the morning of the first day and at the close of proceedings on the second day I gave the legal representatives for the parties notice that I expected to hear submissions from them at the conclusion of the trial as to why the evidence in the matter should not be referred to the Australian Tax Office for the Commissioner’s attention having regard to the evidence that, on its face, suggested that offences against the taxation laws of the Commonwealth had been committed by the parties and other related third parties. The proceedings were settled as between the parties during the course of the next day and I made property adjustment orders, with the consent of the parties, later that afternoon.

2. Before making the property adjustment orders, I informed the parties and their legal representatives that I would still expect to take submissions from them as to why the evidence should not be referred to the ATO, even if I made the orders they were asking me to make. The parties, acknowledging that, still asked me to make orders pursuant to s 79 of the Family Law Act 1975 (Cth) in terms of an agreed draft that had been signed and handed to me. With some minor amendments to that draft that were discussed by me and agreed upon by the parties, orders were made finalising the property adjustment dispute between the parties.

3. Written submissions were then directed to be filed going to the issue of whether or not the evidence should be referred to the ATO. Written submissions from counsel for each of the parties have been received by the Court.

The Question Of Referral

1. Neither party submitted that the Court does not have the power to refer a matter to the ATO for the Commissioner’s attention in appropriate circumstances. Both counsel referred to the Full Court’s discussion of this very point in Malpass and Mayson (2000) FLC 93-061, accepting that the power to refer in appropriate circumstances is not in doubt.

2. As counsel for the husband correctly pointed out though, the Full Court in that decision did observe [at [31]] that the Court is not always under a duty to report the fact of commission of possible offences to relevant authorities. Questions of degree were said to be relevant. Cases in which minor irregularities are revealed in relation to taxation and social security were referred to as being ones in which it would be “unreasonable for the court to burden itself with a duty to report”.

3. Accordingly, I consider that I must turn my mind to the nature of the possible offences revealed by the evidence and make some judgment as to whether those are properly regarded as “minor irregularities” (or something akin thereto) or whether in fact they are potentially more serious by degree, before I determine whether or not to refer the evidence to the ATO.

What Does the Evidence of the Parties Reveal?

1. The husband is and was during most of the marriage one of two directors of a private company that operated an air-conditioning business in south-east Queensland. He was also one of two equal shareholders. Another man is the other director and equal shareholder. He was not a party to the proceedings in this Court. Although the company had been a party to the proceedings very early in time, it was not a party at the trial.  

2. The wife worked throughout most of the marriage in the business as an employee of the company. It could fairly be said, I consider, that she occupied the position of office and accounts manager for most of that time. That was not in dispute.

3. The wife’s sworn evidence was that she made the decisions on which accounts would be paid and when those payments would be paid.  However, she also gave evidence that the directors (the husband and the other man) used the profits of the business for their personal expenses, in that many of the personal expenses of her and the husband and the other director and his wife (who was not employed in the business) were paid for by the business out of its accounts. By clear and unequivocal implication in her evidence, the wife asserted that those personal expenses paid for by the business for both directors and their wives over many years were falsely claimed as business expenses, thus reducing the taxable profit of the company and the tax that was properly required to be paid. She gave that evidence in the context of arguing that the valuation of the business, based on the historical annual financial statements as declared, was inaccurate and unreliable.

4. The husband did not deny the wife’s evidence. Rather, the husband admitted that the business had paid many of his and the wife’s personal expenses over the years, all authorised by the wife in her role as accounts manager. He did not deny knowledge of the long-term practice, but neither did he admit that he knew of it all the years it was happening, had authorised it or even acquiesced in it. He did not deny the wife’s assertions that the business also paid the personal expenses of the other director and his wife in the same way as it had their own. However, he did assert that the wife caused the business to pay his and his wife’s personal expenses “without the knowledge and authority” of the other director.

5. No sworn evidence of the other director was adduced in the proceedings in the husband’s case. There was, therefore, no sworn evidence of the other director denying the wife’s assertions that personal expenses of the other director and his wife had also been paid by the business in the same way. It is to be remembered that there is no dispute that she was the accounts manager for all of the relevant years.

6. The husband adduced into evidence a report said to have been commissioned by the other director of the company from an independent accountant. In that report provided in November 2012, the accountant reported that at least $470,558 had been paid by the business to the personal benefit of the husband and the wife in a period from 1 July 2005 to 23 August 2011 and also in periods outside that time. There was no reporting on any similar exercise undertaken with respect to any personal expenses of the other director and his wife said to have been paid by the business.

7. The single expert accountant who was jointly retained to value the business and the husband’s shares in the company that operated it then provided a valuation of those shares on the basis of an acceptance by the husband of a liability owing by him to the company for that amount of $470,558.  Unsurprisingly, acceptance of that liability significantly reduced the value attributed by the accountant to the husband’s interest in the company. The husband, as a result, presented a case to the Court that the value of his interest in the company that operated the business was not nearly as much as it would be but for that liability. I observe also that it was not nearly as much as it would be if the other director in fact had a similar liability to the company. If the wife’s sworn evidence is true, one would expect a not too dissimilar liability on the part of the other director to exist.

8. In the months leading up to the trial of the matter in this Court, the company’s historical financial statements were amended for the financial years going back to the 2010/2011 year. The company and the husband also lodged amended tax returns for those same years said to reflect the amended financial statements. Additional tax was said to have been paid by the husband and by the company as a result of those amended returns. The Court was told that the amended financial statements resulted in the recording of a liability of the husband to the company of around $600,000 at the time of trial, made up of the principal debt and significant interest now said to be owed on the principal debt. At the same time, the husband’s fellow director was said to only owe the company around $20,000. That would be unlikely to be correct if the wife’s sworn evidence was true. 

9. For the husband, the submission was made that the husband, his co-director and the company had “fully” complied with the Income Tax Assessment Act 1936 (Cth) (“the ITAA”), within the limitations imposed by that legislation. The fact that they had, in 2014, caused amended tax returns to be filed for the company and for the husband going back to the 2010/2011 financial year was relied upon in support of that submission and the relevant provisions of the ITAA limiting the capacity to file amended returns to that four year window were referred to.

10. However, as I remarked to counsel for the husband during the course of discussion of the issue during the trial, on the evidence of the wife and the evidence adduced by the husband, this still means that there is a period of several years during which offences against the ITAA appear clearly to have been committed, with a significant amount of tax that should have been paid still going unpaid even after amended returns were filed for the last four years. Indeed, that is clear on the case presented by the husband in response to the evidence of the wife.

11. In that respect, counsel for the husband, with his written submissions, provided the Court with an estimate of the quantum of unpaid tax, penalties and interest for the period outside the four year period that is the subject of the company’s filed amended returns. That estimate, from the company’s external accountants, amounted to $90,000. That can, in itself, hardly be described as representative of “minor irregularities” having occurred.

12. However, in my view there is an even more significant consideration. If the wife’s evidence is true and the other director and his wife also received the benefit of substantial amounts of personal expenses being paid for by the business over the many years and those expenses were written down as business expenses with false declarations as to taxable income being made regularly, it would seem to me that much more tax has gone unpaid by the company over those many years than just that amount that the husband would have the Court accept.

13. As counsel for the husband also appropriately pointed out, there is no time limit for making a reassessment if the Commissioner is of the view that there has been fraud or evasion. Furthermore, again as submitted by counsel for the husband, it is clear that if the wife’s evidence is true then fraud or evasion on the part of the company may very well be established with significant amounts of unpaid tax potentially being subject to reassessment and recovery.

14. For the husband, it was submitted that the objective conduct of the company and its directors supports a view that fraud or evasion is not likely to be established. It was further submitted that the wife’s allegations “are false and were made to mask her own dishonest conduct and to procure a greater property adjustment from the Husband than she was otherwise entitled to at law.” Whilst settlement of the property adjustment dispute as between the parties relieved me of having to determine that matter of disputed fact, what I saw and heard of the evidence, including the oral evidence of the wife under extensive cross-examination in the witness box, certainly did not persuade me that such a submission would necessarily have found favour with me at the end of the trial.

15. Counsel for the husband ultimately submitted that it is a matter for me to determine whether the evidence is referred to the ATO. Counsel for the wife did not support referral, but like counsel for the husband, ultimately did not submit that I should not refer.

16. Accordingly, satisfied that the evidence in this case reveals matters of potentially serious deliberate non-compliance with the provisions of the ITAA over many years, I have determined that I will refer the evidence in the matter to the ATO and I will make orders providing for that to happen.

I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Forrest delivered on 17 November 2014.

Associate: 

Date:  17 November 2014