A Federal Court ruling has given support to the longstanding business planning strategy of protecting a family home from business risks by purchasing and registering it in the name of the non-risk spouse.
In Commissioner of Taxation v Bosanac, the ATO sought a declaration that Vlado Bosanac had an equitable interest in a residential property in Dalkeith, Western Australia.
Bosanac’s wife Bernadette is the sole registered proprietor of the Dalkeith property, which is encumbered by a registered first mortgage in favour of Westpac.
The ATO and Vlado Bosanac have been tangling in the courts since 2016, when the Federal Court made a judgment against him for A$9.3 million, plus costs, owed to the tax office. Execution of the judgment was delayed by subsequent trips back to court.
The latest case revolved around the concepts of “presumption of trust” and “presumption of advancement”.
Generally, a presumption of trust arises where a person purchases property in the name of another, where the other person contributes only some or none of the funds. In the absence of clear evidence to the contrary, it is presumed that the purchaser did not intend to gift their contribution to the other person. In such cases, one person holds part of the asset in trust for the other person.
There are exceptions, where the law recognises that in certain relationships, such as marriages, a person purchasing property in the name of another, where the other person contributes some or none of the purchase amount, is presumed to gift the property to the spouse. This is the presumption of advancement.
(Because the presumption of advancement is an old legal principle, it only applies where the gift is given by a husband to a wife. It does not apply if the gift is from a wife to a husband, from one same-sex partner to another or from one de facto partner to another.)
The Bosanacs were married in 1998 and the Dalkeith property purchased in 2006. Two Westpac loans were taken out jointly by Vlado and Bernadette. Following settlement the property was transferred into Bernadette’s name.
The Bosanacs separated in 2013, although they continued to live together until 2015. Vlado has never made any claim for any interest in the property.
During the marriage, other assets, including shareholdings, were held separately, although some bank accounts and property were shared.
The ATO argued that the presumption of advancement did not apply in this case because of Vlado Bosanac’s intentions at the time of purchasing the property. It said he would not have incurred a substantial loan liability if he did not intend to retain his beneficial interest.
It also pointed to the Bosanacs’ pattern of shared bank accounts and other property assets.
The court ruled that the ATO did not provide sufficient evidence of an intention by Vlado to retain a beneficial interest in the property.
In the absence of such evidence, the fact that Vlado incurred a substantial liability did not conclusively show that he intended to retain a beneficial interest.
The court said the loan documentation regarding ownership of other assets was inconsistent and could not be relied on.
In a note to clients, law firm Cordato Partners said the case shows that the presumption of advancement remains an effective asset protection strategy (despite its anachronistic features) provided there is no suggestion the husband retains a beneficial interest in the property and there is no intention to defeat creditors by shifting assets into the wife’s name.
Law firm Cooper Grace Ward said the Federal Court’s ruling involved a claim by a creditor but it would also apply in a bankruptcy scenario.
“In Bosanac, the acquisition of the property took place many years prior and there was no suggestion that the purpose of the transfer was to prevent, hinder or delay the property being available for division amongst the husband’s creditors.