For many years, our advice to all our clients involved with businesses has been to put the ownership of their family home in a non-working and non-risky spouse / partner’s name.
The purpose behind this strategy was to Whilst the at-risk spouse, being a doctor, professional, or business owner, is out there making money and building wealth, we advised the family’s assets reside in the names of the risk-free spouse as a protection against legal action.
This provided asset protection for the family home, and when the home is sold it is free from capital gains tax.
The common arrangement looks like this:
Step 1: Identify which individuals or entities are considered ‘high risk’ (and are hence more likely to be at the mercy of creditors in difficult times)
Step 2: Identify which ones are ‘low-risk’.
Step 3: Divest the ‘high-risk’ individuals or entities of any valuable assets to try and keep them out of the creditors’ reach.
Step 4: Make the group’s ‘low-risk’ individuals or entities to hold these assets. In the end,
Outcome: if the ‘high-risk’ individual or entity is pursued by creditors, then further losses may be kept to a minimum where the individual or entity does not actually have any assets for the taking.
When it came to the home, it was common for the home of small business owners to be in the name of the ‘low-risk’ spouse.
However, a recent Federal Court ruling a few months ago has changed the law significantly, meaning the ‘no risk spouse’ approach is no longer viable, and your family home may now be at risk.
Millions of professionals, including thousands of accountants, have adopted this policy on the basis that it proved to be a solid strategy however, with an explosion, the full Federal Court in September 2021 blew this strategy apart.
So what happened? And more importantly, how can we help you?
In the Federal Court Case Commissioner of Taxation v Bosanac  FCAFC 158, the Australian Taxation Office was able to take 50% of a family home that was in a business owner’s wife’s name, to repay the tax debts of the business owner.
In a relatively short, 14 page unanimous judgment, the Federal Court in Commissioner of Taxation v Bosanac  FCAFC 158 allowed the house that was in the ‘low risk’ spouse’s name to be pursued by a creditor (the ATO) as they said that Mr Bosanac had a beneficial interest in the property.
This case shows how easy it is for the Commissioner and other creditors to look at taking your family home even if it is in the ‘low risk’ spouse’s name.
We have no doubt every lawyer and judge will tell you each case needs to be heard on its merits but it would be unsurprising if the Commissioner of Taxation becomes emboldened by the ruling of this case.
For our clients in this position, it is vital to be ahead of the curve so you don’t get caught out by this possible law change.
So what can you do now? Well, if you’re a client that has had this strategy applied, we need to develop a solution that will be effective.
As a client, you may want to roll the dice, but would you roll the same dice with the ATO and a full Federal Court decision? Probably not, and it’s definitely not what we would recommend.
Get in contact with us today so we can work with you to create a tailored solution that will suit your needs, safeguard your estate and keep your assets protected.
For more information about protecting your assets and mitigating legal risk, ask about our risk management services or explore our top five asset protection tips for business owners.
Owner of PCR Accounting & Advisory, Peter Marmara-Stewart is a top-tier accountant and financial advisor dedicated to helping clients reach their business goals and achieve financial freedom. Peter is highly regarded for his client-focused approach and entrepreneurial spirit, catering to a diverse range of professionals across a wide scope of industries all across the country. Peter’s expertise can help you plan effectively, set goals, maximise profits and protect your assets. Get in touch today on (03) 9847 7516.