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A taxing affair

Feature Articles

Cite as: August 2015 89 (8) LIJ, p.46

Practitioners should be aware of the voluntary disclosure programs administered by the ATO and the likely outcome of such disclosures, particularly in family law proceedings.  

By Amber Agustin and Benjamin Lancaster

Unresolved and undisclosed tax positions commonly arise in family law proceedings. These include situations ranging from taking an arguable (but not certain) interpretation of the tax law, through to taxpayers who may have knowingly failed to meet their tax obligations.

The voluntary disclosure programs administered by the Australian Taxation Office (ATO)1 provide an opportunity for taxpayers to seek to disclose and rectify previously undisclosed tax positions. This may offer significant strategic benefits and alleviate risk to a taxpayer in the context of imminent or commenced family law proceedings.2

Risky tax positions

Global information sharing across jurisdictions has improved significantly in the last decade, making it increasingly difficult for non-compliant taxpayers to remain outside the net of the Australian tax system. Against this backdrop, the Commissioner of Taxation (Commissioner) has recently sought to obtain documents in a number of Family Court matters to use in auditing parties involved in those proceedings. Practitioners may also be aware of matters in which one spouse threatens to disclose a tax issue to the Commissioner in order to gain an advantage in family law proceedings.

The Commissioner may become aware of a previously undisclosed tax position in several ways, in the context of imminent or actual family law proceedings.

First, the Family Court3 may refer matters to the Commissioner or the Attorney-General. Depending on the nature of an undisclosed tax position, it may be a matter which gains the Court’s attention during the course of the matter. It is well established that the Family Court has the power to refer matters to the Commissioner for investigation where the evidence discloses tax fraud or evasion.4 In T and T5 Simpson and Barblett SJJ said:

“In our opinion there can be no doubt . . . that where the evidence or other material discloses breaches of Commonwealth laws a judge of the Family Court of Western Australia exercising jurisdiction under the Family Law Act 1975 is entitled to bring these breaches to the notice of the Commonwealth Attorney-General”.

Second, the Commissioner may seek access to documents on the court file in family law proceedings.

Third, a party to family law proceedings may refer documents or information from the proceedings to the Commissioner.

Fourth, a party to imminent or commenced family law proceedings may report a tax matter to the Commissioner without producing any documents or information.

This article is primarily concerned with scenarios in which the Commissioner becomes aware, or one party threatens to make the Commissioner aware, of an undisclosed tax position before the final hearing of family law proceedings, and the use of voluntary disclosures to the Commissioner to alleviate that risk.

ATO access

Documents, including those produced by way of financial disclosure and affidavits as to contributions made by spouses in family law proceedings, may be of interest to the Commissioner.

The ATO may seek an order to access and use documents from current or concluded proceedings. The ATO made at least two such applications in 2014, with varying levels of success.

FCT v Darling

In Federal Commissioner of Taxation v Darling6 the ATO obtained access to the Court’s file from a concluded proceeding. In somewhat unusual circumstances, the ATO had approached the Family Court Registry directly and purported to exercise its compulsory access powers, which were said to permit the inspection of the file.7 Having ascertained that a number of documents were relevant to the ongoing audit, the ATO sought:

  • a declaration that it was not bound by the implied undertaking to not make use of documents received under compulsory court processes other than for the purposes of the litigation8 (either because it was not a party to the litigation, or because it was inconsistent with the ATO’s statutory functions); or
  • in the alternative, an order releasing the ATO from the implied undertaking.
  • On appeal, the Court found that the implied undertaking operates to bind strangers to the litigation, and that there was nothing in the tax legislation which operated to relieve the ATO from the implied undertaking. These findings have general application, and will also be of significance outside the context of family law proceedings.

    However, the Court exercised its discretion to allow the ATO to make use of the documents. In doing so, the Court emphasised the fact that the ATO performs an important public duty in its administration of the tax system, which would be aided by access to the documents.

    While the husband applied for special leave, the application took an interesting turn.9 The High Court considered that the matter was not a suitable vehicle for a grant of special leave, as it doubted that the ATO was subject to the implied obligation, having regard to the express finding of the Full Federal Court that the Commissioner obtained the documents using his compulsory access powers.

    The ATO’s Decision Impact Statement10 acknowledges that the use of access powers against a court could amount to contempt, and reiterates that ATO staff are instructed to apply to the court when seeking documents. Taxpayers should therefore be on notice of, and in a position to challenge, any future attempts by the ATO to obtain access to court documents.

    There are a number of aspects of the case which are unclear and practitioners should expect further developments in this area.

    International Litigation Partners

    The ATO was unsuccessful in an application to access a Federal Circuit Court file in International Litigation Partners Pte Ltd v Commissioner of Taxation.11 The ATO had completed an audit of a company associated with the husband. The company then commenced proceedings in the Federal Court challenging the assessments made.

    The relevant family law file related to both property and a child of the marriage (however, the ATO expressly did not seek access to any documents in relation to the child). The ATO sought access to support its case that the relevant company was a resident of Australia because it was managed by the husband in Australia.

    The application was refused. The central reasons for the Court’s decision to refuse access were that the ATO did not establish the relevance of the documents likely to be contained in the Court’s file and that documents including information about the child could not be readily separated from the information sought by the ATO.


    The public interest in regulators performing their statutory functions will be given significant weight by the courts in exercising their discretion to allow access to documents produced in family law proceedings. In the context of applications by the ATO, the material factors relevant to the exercise of the court’s discretion include whether:

  • the Commissioner is involved in an active investigation;12
  • the party to the marriage is the subject of the investigation (or, if this is not the case, the degree of connection between the party to the marriage and the investigation);13
  • the Commissioner’s investigation was a targeted enquiry, or commenced at random;14
  • the parties have assets outside Australia about which the Commissioner is seeking information;15
  • the proceedings involve children, and if so, the practicality of separating information concerning the children;16
  • the information in the court’s file is likely to be relevant to the Commissioner;17 and
  • each party consents to, or opposes, access being granted to the Commissioner.18
  • Where the court’s analysis favours access, the court will grant the Commissioner access to documents from the court file and will authorise the Commissioner to use the documents in performing his statutory duties.

    Spouse notifies ATO

    The threat to report some aspect of the other spouse’s tax affairs to the ATO may be used as a negotiating tactic to attempt to force one party to compromise the family law proceedings on terms unfairly favourable to the other. Such a threat may have serious and irremediable consequences.

    For example, one spouse in the family law proceedings may send documents from the proceedings to the Commissioner. The Commissioner may take the view that the restriction on publication of aspects of family law proceedings found in s121 of the Family Law Act does not apply to a spouse who gives documents from those proceedings to the Commissioner for his use within the scope of his statutory duties.19 Further, the implied undertaking described by the High Court in Hearne v Street20 is unlikely to prevent the Commissioner’s use of those documents once they have been read into court.

    Why disclose?

    Voluntary disclosures can be used by parties to proceedings to address tax risks which come to light through family law proceedings.

    Parties may have reservations that disclosing an uncertain tax position may lead to a reduction in the overall property pool and may lead to other outcomes including penalties and disputes with the ATO. While this may be true, making a voluntary disclosure can have advantages, including:
  • neutralising a strategic threat by the other party to disclose information to the ATO;
  • the ATO may obtain access to the information from another source, including the other spouse or from the court’s file;
  • enabling risks and contingent liabilities to be resolved or quantified prior to the division of assets, and not unevenly borne by one spouse; and
  • against the backdrop of improved international information sharing between jurisdictions and revenue authorities, it can be riskier to do nothing than to make a voluntary disclosure, although practitioners must be aware that they cannot advise a client not to disclose or assist a client to hide or fail to disclose income, assets or interests from the Australian revenue system.
  • If the ATO becomes aware of a tax issue as a result of a referral from a court or from its own enquiries, the likely result is an audit. Attempting to address an uncertain tax position in an adversarial environment is significantly less likely to lead to a favourable resolution of the tax issue.

    If a tax issue does not come to the ATO’s attention at the time of family law proceedings, it will remain unresolved for the time being. This risk and contingent liability will usually lie with the main income earner in the relationship, who may receive an unfair distribution from the pool of assets if the tax risks which they will carry into the future are not taken into account.

    Voluntary disclosure

    Making a voluntary disclosure is a proactive approach which can be used to resolve tax issues for any taxpayer (including the parties to a marriage, their related companies or any controlled trusts). The ATO offers highly concessional treatment of taxpayers who make a voluntary disclosure of undisclosed tax positions that result in a tax shortfall. While the tax has to be paid in full, there are significant benefits in making a voluntary disclosure, including:

  • under law, penalties are reduced (by as much as 80 per cent) where a voluntary disclosure saves the ATO significant resources (compared with possible penalties of up to 90 per cent of the tax shortfall otherwise);
  • it is less likely that the ATO will make a finding that tax has been avoided as a result of fraud or evasion (which would enable the ATO to issue amended tax assessments going back beyond the typical four year amendment period); and
  • issues are able to be discussed and resolved with the ATO in a non-adversarial manner, which typically leads to better outcomes.
  • The voluntary disclosure process inherently involves risks and must be well-managed, with strong advocacy on behalf of the taxpayer. The benefits of a voluntary disclosure and the comfort a taxpayer may derive from a finalised voluntary disclosure may be unwound if a taxpayer has not complied with the conditions of the voluntary disclosure process, including the requirement that the taxpayer make a full and frank disclosure.

    Depending on a taxpayer’s circumstances, a voluntary disclosure may not necessarily concede that additional tax should have been paid. While the taxpayer will inform the ATO of the relevant facts, they are free to assert that the amounts have been treated correctly in their income tax return. As such, a voluntary disclosure may result in the ATO agreeing that no adjustments are required, or that certain amounts of income or expenditure should be treated in a particular way.


    The scope, extent and process for making a voluntary disclosure need to be managed carefully, and should be tailored to the circumstances of the parties and the tax risks involved. If this is done, taxpayers can expect a significantly better outcome than would be obtained if the ATO became aware of the information from their spouse or another source.

  • Family law proceedings often shed light on unresolved and undisclosed tax positions.
  • Voluntary disclosures can be used to mitigate the risks of these tax positions, and the risk of one spouse using tax risks as leverage in negotiations.
  • Courts may allow the Australian Taxation Office to access documents from family law proceedings, such as in Federal Commissioner of Taxation v Darling.
  • Taxation Taxation
    Amber Agustin is a senior associate at Clayton Utz. Benjamin Lancaster is a lawyer at Clayton Utz. 1. References to the ATO and the Commissioner of Taxation (Commissioner) are used interchangeably in this article, unless the context requires otherwise. 2. Seeking a private ruling from the Commissioner may, in certain circumstances, offer some strategic benefit in the context of imminent or commenced family law proceedings. 3. In this article, references to the Family Court should be read as including references to the Federal Circuit Court in its family law jurisdiction, unless the context requires otherwise. 4. In the Marriage of Malpass and Mayson (2000) 27 Fam LR 288. 5. (1984) FLC 91-588. This principle is recognised as the correct position in the Family Court of Australia as well as the Family Court of Western Australia. 6. (2014) 285 FLR 428. 7. In this case, s263 of the Income Tax Assessment Act 1936 (Cth). 8. See Hearne v Street (2008) 235 CLR 125. 9. Darling v Commissioner of Taxation & Anor [2014] HCATrans 178. 10. 11. [2014] FCA 671. 12. Note 7 above, at [172] and [175]. 13. International Litigation Partners Pte Ltd v Commissioner of Taxation [2014] FCA 671, at [13]. 14. Note 7 above, at [198]. 15. Note 7 above, at [198]. 16. Note 10 above, at [14]. 17. Note 7 above, at [106]-[107], [180] and [198]. Note 10 above, at [11]. 18. Note 7 above, at [177] and [198]. Note 10 above, at [12]. 19. See In the Marriage of W F and M J Tingley (1984) 10 Fam LR 707 in which the Court found that publication to the Attorney-General and his responsible officers was not publication to the public or a section of the public and thus did not contravene the prohibition on publication. 20. (2008) 235 CLR 125.


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