A Socialite’s Mansion is (still) her Castle
The decision in Commissioner of Taxation v Bosanac  FCAFC 158 was a shock to the system for professionals who routinely advise clients to structure their affairs such that significant assets are held in the sole name of the low-risk spouse. That case saw the ATO successfully argue that half of the equity in a Dalkeith home (registered in the wife’s sole name) should be deemed to be held for the benefit of her ex-husband and therefore available to satisfy his debts.
The background to the decision was:
- In 2006, during their marriage, the wife purchased the Dalkeith home in her sole name for $4.5 million;
- The deposit was funded by a joint bank account and finance was obtained in joint names for the balance of the purchase price. The loans were secured by mortgages over the Dalkeith home and other properties – one held in the husband’s sole name and the other held in the wife’s sole name.
- The couple subsequently separated in 2013, and the husband moved out of the Dalkeith home in 2015.
In 2016, the ATO obtained judgment against the (now ex-) husband for a tax debt exceeding $9 million. The ATO sought a declaration that half of the equity in the Dalkeith home was held on trust for the ex-husband.
The basis for the ATO’s argument was a legal presumption that a person who advances purchase monies for property, which is held in the name of another person, intends to have a beneficial interest in the property (“presumption of resulting trust”). That presumption is subject to an exception that, in the case of purchases by a husband in the name of a wife, the beneficial interest was intended to pass with the legal interest (“presumption of advancement”). However, the ATO was able to show that the exception did not apply to this particular transaction and thereby obtained its favourable judgment from the Full Federal Court.
Last week, in a turn of events, the High Court handed down a unanimous judgement in Bosanac v Commissioner of Taxation  HCA 34, allowing the wife to keep the Dalkeith home and confirming it could not be used to pay her ex-husband’s debts. The High Court found that the presumption of resulting trust did not arise as, on the evidence, there was an inference that the parties objectively intended for the wife to be the sole owner of the Dalkeith home. The ex-husband had merely facilitated her acquisition.
The High Court’s decision largely depended on the facts of the case, including that:
- The ex-husband was a sophisticated businessman and would have appreciated the significance of legal title to land.
- During their marriage, the couple held most of their assets separately.
- There was no suggestion that the Dalkeith home was purchased in the wife’s name to help her ex-husband avoid creditors.
The High Court also observed that in certain relationships, such as that between a husband and wife, the presumption of resulting trust does not arise. The Commissioner’s contention that the presumption of advancement should be abolished was therefore rejected.
From an asset protection perspective, registering a main residence in the low-risk spouse’s sole name may still be a viable strategy in certain circumstances. If nothing else, it at least creates an additional barrier for potential creditors to overcome.
Lisa Monaco, Associate Director