Money from ex-husband’s company assessable

The AAT has affirmed the Commissioner’s decision that money received by a taxpayer from her ex-husband’s company was assessable income in the taxpayer’s hands.

Background

The taxpayer argued that the money ($1.6 million) she received from a company run by her then-husband in the 2007–2008 income year was provided to her as part of a domestic arrangement under which she accessed her husband’s income, or was “perhaps a consequence of a gift”, and that the amounts were therefore not assessable in her hands.

Broadly, the taxpayer contended that she had agreed to finance her then-husband’s purchase of shares in the company and that she was behaving as a “good” wife who deployed the resources at her disposal in support of her husband, and that she was not an independent investor in her husband’s business. The taxpayer said her then-husband had asked her to “back his investment in the company” and said that she agreed to advance her then-husband around $100,000 to finance the acquisition. After the acquisition, the taxpayer began receiving payments into a joint account from her then-husband’s company. (The AAT said the company “appears to have generated the money through a fraudulent scheme that raised millions from hapless investors seeking fabulous returns”.)

The Commissioner submitted that the taxpayer financed her husband’s business, for which she expected an income stream. The Commissioner raised an assessment and imposed an administrative penalty of 50% on the basis that the taxpayer was “reckless”.

Decision

The AAT held that the payments were properly characterised as “income according to ordinary concepts” within the meaning of s 6-5 of the ITAA 1997. The AAT found that the taxpayer “was an investor who expected and received a return on the investment she made”. The AAT did not accept that the taxpayer was acting as a supportive spouse who passively received benefits provided to her by her husband under a matrimonial arrangement. The AAT was of the view that the documents before it suggested that the taxpayer had approached her involvement with her then-husband and the company as a business decision that she expected would yield a profit in “her” hands.

Some of the documents included: bank loan applications indicating investment purposes; ASIC records indicating that the taxpayer was a shareholder in the company (although the AAT said it was not clear whether the taxpayer was actually a shareholder); and correspondence between the taxpayer and her then-husband, accountant, and pastor. The AAT also noted that the taxpayer was a joint signatory on the company’s cheque account and had received a group certificate from the company (although the AAT also noted that there was no evidence to suggest she was employed by the company).

The AAT also noted that the bulk of the money was paid into an account to which the taxpayer had access, while further amounts were paid to her at her direction. The AAT also affirmed the imposition of penalties at 50% and held that there was no basis for remission.

Re WJBS and FCT [2013] AATA 518, www.austlii.edu.au/au/cases/cth/AATA/2013/518.html.