Ross Forrester
by Ross Forrester
Ross Forrester is a Director of Westcourt in Perth Australia. He is the Asian Chair of the GGI International Tax Practice Group and the Vice-Chair of The Tax Institute in Western Australia.Contact Ross.
A common asset protection strategy in Australia is to purchase the matrimonial home in the name of the low-risk spouse. This way, if any outside creditor attacks the family's wealth, the attack is quarantined to the high-risk individual who does not own the family home. This strategy works well with a family's tax structuring, where the couple can sell their main residence free of tax, regardless of whether the family home is owned jointly, disproportionately, or in the name of only one spouse.
However, this strategy has been potentially at risk due to the presumption of resulting trust. If two persons contribute to the purchase price of a property and legal title is held by only one of the parties, the law can assume that the party who holds the property does so in trust for the other party. Ultimately, the property becomes held in trust for the high-risk individual, which exposes the family home to attack by creditors.
There is an exemption to the presumption of resulting trust through the presumption of advancement. The presumption of advancement assumes that the monies contributed were intended to be a gift because of a certain relationship between two people, such as marriage. However, both positions can be rebutted by evidence of the parties' intentions at the time the house was purchased. Therefore, a classic asset protection strategy is to ensure that the documents around the family home, on acquisition, clearly prove the parties' intention to support the presumption of advancement.
Some Australian commentators have considered that the presumption of advancement has been decreasing over the years. However, a recent High Court case (Bosanic v FCT) reaffirms that the presumption of advancement and the presumption of resulting trust in Australia are alive and well. In fact, the High Court has been seen by many as extending the presumption of advancement, stating that "Given the significance of a relationship of close trust in finding the objective facts, there may well be scope in the future to extend the 'presumption' of advancement to a broader range of relationships."
In the Bosanic case, Mr. and Ms. Bosanic were married, with Ms. Bosanic purchasing the family home in Dalkeith Perth. The home deposit of AUD 250,000 came from a joint bank account, and the loan to acquire the property was a joint loan taken by both Mr. Bosanic and Ms. Bosanic. The couple lived in the property for seven years.
In April 2016, the Australian Taxation Office successfully brought a claim against Mr. Bosanic for AUD 9 million. The ATO then sought to access the equity in the family home (held by Ms. Bosanic) using the presumption of resulting trust. The argument focused on the Bosanics' use of the property for joint use – the property was intended to be their matrimonial home, the deposit was funded from a joint account, and there was a joint loan of AUD 4.5 million.
The ATO won at the Full Federal Court, and the presumption of resulting trust applied. As a result, half of the family home was available to the ATO for the pursuit of its debt. However, on appeal, the High Court ultimately decided that the presumption of resulting trust did not arise in the first instance. Importantly, they did not consider the presumption of advancement applied but merely decided that the facts alone did not give rise to the presumption of resulting trust.
In effect, the Bosanic case has increased the asset protection benefits where the family home is held in the name of the low-risk spouse. However, practically, the case is problematic for many. Many banks have forced family members (like parents) to take a legal interest in property purchases when parents help children (through a guarantee) acquire a home. Given that the family home can only be sold free of tax if it is owned by the couple living in it, the presumption of resulting trust has been used in many instances to show that the family home is fully beneficially owned by the child, giving the child an ultimately tax-free sale of the home later-on.
In these instances, parents who inadvertently acquired a home due to bank lending requirements are now paying tax when the child sells their family home. And these default tax assessments issued by the ATO are becoming increasingly difficult to defend given the recent decision in Bosanic v FCT.
Given the complexity of bank lending, capital gains tax, and the ever-changing combinations of the presumption of resulting trust, and the presumption of advancement, great care needs to be taken when purchasing a family home to ensure that competing priorities are considered and managed at the time of acquisition.
Westcourt is an advice firm that has one focus: it makes family-owned businesses great. Westcourt believes that family-owned businesses can and should be the primary drivers of employment, innovation, and profits in Australia. Westcourt wants to be the catalyst for that change. By keeping this focus, Westcourt provides great advice. Its targeted approach gives it a deep understanding of how families in business operate, work, and generate profits.
GGI member firmWestcourt Family Business AccountantsPerth, AustraliaT: +61 08 9221 8811Advisory, Corporate Finance, Fiduciary & Estate Planning, Tax
