Family Court frustrates ATO audit – Commissioner prevented from using documents filed in Family Court proceeding

14 June 2013 Topics: Tax and revenue

The Family Court has dismissed an application by the Commissioner of Taxation to be released from an implied obligation not to make collateral use of certain documents filed in a Family Court proceeding.

The facts

Mr Darling and his wife were parties to a Family Court proceeding. The Commissioner sought to use the documents filed in the proceeding to ‘assist with’ the audit of Mr Darling and his related entities for the 1991 to 2010 income years.

The Commissioner searched and inspected the Court records on several occasions and made copies of the relevant documents.

Implied obligation

Having inspected and copied documents from the Court records, the Commissioner had an implied obligation not to use those documents for a purpose that was not related to the Family Court proceeding.

The Court noted that the purpose of this obligation was to preserve the parties’ privacy and to encourage full and frank disclosure. The party obtaining the disclosure cannot, without the leave of the Court, use it for any purpose other than that for which it was given.

In determining whether it should exercise its discretion to release a party from the implied obligation, the Court must determine whether ‘special circumstances’ existed.

‘Special circumstances’

To establish special circumstances, the Court needed to be satisfied that there was some special feature that was not usually present that merited the release of the obligation.

One of the relevant public policy considerations was whether the disclosure of the documents will contribute to achieving justice in the Commissioner’s audit.

In his application for release, the Commissioner was required to:

  1. specify the documents for which release was sought;
  2. specify the purpose for which release was sought; and
  3. satisfy the Court that the special circumstances relied upon warranted or justified the release sought.

The decision

The Court held that the Commissioner did not discharge his obligation to adequately specify the reasons why certain documents were necessary and relevant to the conduct of an audit.

In reaching its decision, the Court made the following observations:

  • There was no evidence as to the nature of the audit of the husband’s affairs or what information may be required to complete that audit.
  • There was no evidence as to what information had been obtained and why that information might be insufficient to complete the audit. (This was significant given the wide powers the Commissioner had to obtain information.)
  • There was no evidence presented to support the belief that the documents would be relevant either generally or in relation to specific documents.

The Court refused to release the Commissioner from the implied obligation. It was not satisfied that the release was necessary in the public interest to enable the Commissioner to fulfil his statutory function.

For further information on this topic, please contact Fletch Heinemann from our commercial team.

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