The Full Federal Court upholds creditor’s claim rebutting the presumption of advancement – Commissioner of Taxation v Bosanac [2021] FCAFC 158

The Full Federal Court recently rejected the matrimonial home exception said to arise by a 2006 High Court decision that both spouses share equal interest in family homes (regardless of the amounts contributed by them).

In 2006, the High Court of Australia handed down its decision in the case of The Trustees of the Property of Cummins (a bankrupt) v Cummins (2006) 227 CLR 278 (Cummins). While ostensibly a case about bankruptcy and transactions intending to defeat creditors, Cummins became the leading authority on the presumption of advancement.

It introduced into Australia the presumption that whatever the legal title, if both spouses contribute to the acquisition of a property, then it may be inferred that they intended to be joint beneficial owners, regardless of the amounts contributed by them.

What was unclear was whether the High Court in Cummins was introducing a new equitable principle which qualified the presumption of advancement. In the August 2021 decision of Commissioner of Taxation v Bosanac [2021] FCAFC 158 (Bosanac), the Full Federal Court held that the High Court in Cummins did no such thing.

Bosanac confirms the application of equitable principles – that is, there is no doctrine in Australian law which says that spouses should each have a one‑half interest in family homes regardless of the amounts contributed by each.

The Cummins confusion

Before the decision in Cummins, it was clear that where two parties contribute to the purchase price of a property, but legal title to the property is put in the name of only one of them, a resulting trust is presumed to arise for the contributors as tenants in common in proportion to the amounts which each contributed, see: Calverley v Green (1984) 155 CLR 242; and Delehunt v Carmody (1986) 161 CLR 464.

The existence of a resulting trust may be rebutted where the parties stand in certain relationships to each other, such that it is instead presumed that the purchaser’s contribution was intended as an advancement (i.e. a gift) to the other party. This presumption of advancement arises where a husband makes a purchase in the name of his wife, or makes a contribution to the purchase price, but does not take legal title that reflects that contribution, see: Martin v Martin (1956) 110 CLR 297; Allen Snyder (1977) 2 NSWLR 685. Each of these presumptions can be rebutted by evidence of the actual contrary intentions of the parties.

The Courts apply these equitable principles to determine a bankrupt’s liability with respect to jointly owned property.

The High Court in Cummins quoted with approval the following passage from Professor Austin Scott’s The Law of Trusts:

‘Where a husband and wife purchase a matrimonial home, each contributing to the purchase price and title is taken in the name of one of them, it may be inferred that it was intended that each of the spouses should have a one‑half interest in the property, regardless of the amounts contributed by them.’

One question that was left unanswered by the Cummins judgment is how this inference of joint ownership is to be reconciled with the presumption of advancement of a wife. This is because on the facts of the case, title was taken in the joint names of the spouses.

The High Court did not make any mention of the potential for conflict between the inference of joint ownership and the presumption of advancement of a wife. Further, while the Federal Court and Family Court at first instance have applied the inference, the presumption of advancement did not arise in these cases as the properties were held jointly.

Bosanac clarifies equitable principles of interest in the family home

In Commissioner of Taxation v Bosanac (No 7) [2021] FCA 249 (decided on 22 March 2021), the Commissioner of Taxation, who was owed a judgment debt by Mr Bosanac, was denied declaratory relief that Mr Bosanac had a 50% equitable interest of the available equity in a family home which was registered in the name of his wife. The wife successfully established the presumption of advancement in her favour despite joint bank accounts and other property jointly shared with her husband.

Justice McKerracher of the Federal Court considered that the High Court did not abolish or qualify the presumption of advancement for transactions concerning the matrimonial home and the presumption has long been accepted as entrenched in Australian law. His Honour said that any modification of the presumption must be left to the legislature.

The Commissioner contended that the High Court in Cummins qualified the equitable principles of presumption of advancement and submitted that the High Court accepted that where a husband and wife each contribute to the purchase of a matrimonial home and title is taken in the name of one of them, it may be inferred (notwithstanding the presumption of advancement) that it was intended that each spouse should have a one-half interest in the property regardless of the amounts contributed by them.

The Commissioner argued that even if the High Court in Cummins did not qualify the presumption of advancement, if it arose the presumption was rebutted and it was inferred that Mr Bosanac intended to retain a beneficial interest in the property on the following grounds:

  • the property was their matrimonial home and they resided together for a period of more than seven years;
  • both Mr and Ms Bosanac each contributed half of the purchase price by taking out loans to finance the purchase in their joint names; and
  • both Mr and Ms Bosanac were jointly and severally liable to pay the mortgage.

Justice McKerracher rejected the Commissioner’s arguments and concluded that the Commissioner had not provided sufficient evidence of the intention by the husband to retain a beneficial interest in the property. The fact that they used joint loan funds to fund the purchase of the property and Mr Bosanac was liable to repay the loans did not rebut the presumption of advancement.

The Commissioner appealed Justice McKerracher’s decision to the Full Court of the Federal Court which handed down its decision in Commissioner of Taxation v Bosanac [2021] FCAFC 158 (Bosanac Appeal) on 31 August 2021.

The Full Court allowed the appeal by the Commissioner of Taxation. The Full Court found that the presumption of advancement was rebutted by the facts at hand. Nevertheless, the Full Court agreed with the lower court and held that Cummins did not qualify the presumption of advancement nor did High Court in Cummins intend to introduce a new trust principle or a special category of case needing to be treated differently from other categories.

The Full Court explained that all the High Court was saying in Cummins was that the presumption of advancement is liable to be displaced or rebutted by evidence, including the circumstances of the particular transaction which may give rise to a positive inference inconsistent with the presumption and thus rebutted. At [16] the Full Court said:

‘However, the presumption of advancement does not operate to preclude examination of the quality of the particular transaction in connection with which the presumption arises in order to determine whether the evidence as a whole shows the presumption to be inconsistent with what was in fact intended.’

The Full Court held that the primary judge erred in excluding from consideration the fact that Mr Bosanac assumed a substantial liability without the benefit of acquiring any beneficial interest. The Full Court decided that this fact should not have been excluded from a consideration of whether the presumption of advancement had been rebutted and held that this significant evidence permitted an inference as to intention consistent with the inference drawn in Cummins. Also of significance was the fact that Mr Bosanac used the property to secure further borrowings of $3.6 million to pursue share trading activities. This supported an inference that the property was available to both parties.

The Full Court held that based on the evidence and the facts, an inference could be drawn that at the time of the purchase Mr Bosanac and Ms Bosanac intended that Mr Bosanac would have a 50% beneficial interest in the property and awarded the Commissioner of Taxation the declaratory relief sought.

The take away for equitable principles

Paradoxically, by denying that Cummins qualifies the presumption of advancement, the Full Court applied Cummins as intended by the High Court. It is now clear that:

  • Both equitable principles – the presumption of resulting trust and the presumption of advancement operate in Australia today as they did prior to Cummins.
  • Cummins does not qualify or abolish the presumption of advancement but allows for that presumption to be rebutted in circumstances where it can be inferred that the spouses actually intended for a solely owned property to be held on trust for both spouses.
  • A presumption differs from an inference in that an inference is something which may be drawn from facts directly proved, whereas a presumption (unless rebutted) operates automatically once a certain fact is proved.

The Bosanac Appeal demonstrates that each case will turn on its own unique circumstances in determining the equitable principles (inferences to be drawn and the presumptions which will be applied).

CMN’s Insolvency lawyers and litigators can help individuals facing bankruptcy protect their assets from their trustee in bankruptcy and can advise trustees on how to recover properties that have been put in the name of the bankrupt’s spouse.

Our Litigation and Insolvency team advise and act for a wide range of parties in disputes ranging from routine to complex. If you are in need of legal assistance, please contact us for a confidential discussion about your situation.

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Key Contacts

If you are in need of legal assistance, please contact us for a confidential discussion about your situation.

CMN’s Insolvency lawyers and litigators can help individuals facing bankruptcy protect their assets from their trustee in bankruptcy or from creditors and can advise trustees on how to recover properties that have been put in the name of the bankrupt’s spouse. Our Litigation and Insolvency team advise and act for a wide range of parties in disputes ranging from routine to complex.

Contact CMN