Use of family law court documents by the ATO

In 2009 the Australian Taxation Office (ATO) commenced an investigation into the activities of a man given the pseudonym of Mr Darling. At that time Mr and Mrs Darling were involved in litigation before the Family Court in relation to their property division dispute.

In December 2010 Mr and Mrs Darling consented to their property division matter being dismissed by the Court without resolution. However, prior to the dismissal of proceedings various documents had been filed with the Court by both parties and the ATO had (without the knowledge of the parties) sought and been given access to the Court file. 

On 3 July 2012 the ATO Commissioner sought an Order that the Commissioner of Taxation by released from the implied obligation not to make use of documents filed in the proceedings for purposes other than those of the proceedings, and to make use of the documents for the administration of the Income Tax Act 1936 and/or the Taxation Administration Act 1953 in relation to Mr Darling and his related entities in respect of the income years ending 30 June 1991 to 30 June 2010 and the determination of any objections to assessments of tax, penalties or interest issued in respect of those tax years.

In March 2013 the ATO's application was rejected by the Court.

The Court held that the Commissioner remained under an implied obligation not to make use of the documents for a purpose not related to the family law litigation.

The Judge said the purpose of the implied obligation was “to preserve the parties’ privacy and to encourage full and frank disclosure”, both of which concepts were “of particular importance and sensitivity in relation to proceedings in this court”.

Her Honour noted that a person may be released from the implied obligation if there are “special circumstances” but that there was "very real force in the submission made on behalf of the husband that the Commissioner has not specified the purpose for which the documents are required and on that basis I could not be satisfied that there [are] “special circumstances” nor whether the release from that obligation is necessary and in the public interest to enable the Commissioner to fulfil his statutory function."

The ATO appealed that decision. Which brings us to the case of the Commissioner of Taxation and Darling [2014] FamCAFC 59.

On appeal the ATO's application succeeded.

The Court held that "In our view the most important consideration is whether or not granting the Commissioner relief from the obligation is likely to discourage litigants from making a frank disclosure. There is already a heavy obligation on litigants in Family Court proceedings to make such a disclosure, and they are required to provide a written undertaking to the court that they have done so. Most importantly, it is vital to recognise that there is already a disincentive to litigants to be frank with the Family Court about tax evasion because it is (or should be) well-known that the Court can and does refer such matters to the authorities for investigation."

The Full Court concluded that while there is a range of competing considerations discretion should be exercised in favour of the Commissioner having use of the documents for the following reasons including:

1.      The Commissioner is performing an important public duty. The public interest is advanced by ensuring all taxpayers pay their fair share of tax.

2.      The Commissioner is engaged in a substantial, targeted audit. It is not a “random audit”.

3.      Although many of the annexures to the affidavits may be available to the Commissioner from other sources, the parties’ own assertions about the history of acquisition of assets would be available only to the Commissioner by interview with the parties in which they may have an incentive not to be frank.

4.      There are restrictions on the way in which the Commissioner can use the information obtained from the court file which would ensure that the documents do not venture into the public arena, thus ensuring there is no breach of section 121 of the Family Law Act.

5.      The affidavits and financial statements were sworn by the parties for the purposes of the proceedings and therefore in the expectation that they might be read in open court.

6.      Albeit brief, and expressed in general terms, the officer of the ATO sufficiently stated the purpose for which the documents were required.

Despite success in this case it does not necessarily correspond that there will be a flood of applications by the ATO to make use of family court documents. According to an article in the Sydney Morning Herald by Michaela Whitbourn, a spokesman for the ATO said it did not expect an increase in the number of cases in which the Commissioner sought access to Family Court documents.