This case is an important reminder about the potential for tax debt to be ignored by the court and double dipping in assessment of income and business valuations.
This was an unsuccessful appeal where:
- It was argued that the primary judge double counted business profits as income and where they formed the basis for the valuation.
- A tax liability was excluded from the balance sheet.
The Tax debt
The appellant sought the inclusion of a $41,339 tax debt as a liability in the property pool.
The primary judge made various findings about the appellant’s shortcomings with respect to disclosure and his use of funds. The primary judge stated in relation to the tax debt that ‘I accept the liability exists…The [appellant] does not give any evidence to explain why he has not paid his debt and let it accrue interest.’ It was also found that the appellant had the funds to meet the debt should he have elected to do so.
The court on appeal determined that it is open to the primary judge to exclude the debt from the balance sheet.
Parties should not expect that just because a debt exists that it will be included as a liability in the property pool available for division. This case is a helpful reminder to litigants and practitioners that it is necessary to consider each item in the balance sheet and to establish why it should be there if it is disputed, with the necessary supporting evidence as well obtaining appropriate accounting advice about the payment of taxation debts.
Double dipping business income and the valuation of the business
The primary judge accepted the valuation methodology for the business.
This case helpfully lists a number of recent cases in which the court has explored the issue of the potential for ‘double dipping’ due to a valuation of business and income as well as inclusion of a pension or annuity as a lump sum and as a ‘future needs’ factor.
The court on appeal held that when reading the judgment it could not be the case that the primary judge took the business profits into account as income of the appellant.
This case is another helpful reminder to litigants and practitioners as pointed out by the court that care must be taken not to double count income which forms part of an asset as part of the ‘future needs’ considerations. It is also a reminder to carefully review business valuations and the assessment of income in those valuations in consultation with appropriately qualified financial experts and accountants.
