Is it a gift or is it held on trust?

High Court keeps presumption of advancement – for now.

A recent High Court decision has confirmed that contributions of funds or transfers of assets from a husband to a wife, or from a parent to a child, are still presumed to be gifts under Australian Law. But in its lead judgement, Chief Justice Susan Kiefel and Justice Jacqueline Gleeson stated that the presumption of advancement was “especially weak today” and the presumption could be readily rebutted by evidence of the intention of the parties to the contrary.

What is the presumption of advancement?

The presumption of advancement, an equitable doctrine that dates back to the 17th century English Law, presumes that transfers of assets from husbands to wives, male fiancés to female fiancés and parents to children are gifts in the absence of evidence to the contrary. For all other categories of relationship (including asset transfers from a child to a parent, from a husband to a husband, a wife to a husband or wife, sibling to sibling or even from a de-facto partner to another de-facto partner) the presumption does not exist and such transfers – where something has been given without anything being received in return – are presumed to be held by the recipient on a “resulting trust” for the transferring party.

By presuming that a transfer of assets or contribution of funds in these categories of relationship are held on a resulting trust, the evidentiary onus is on the recipient to prove that the transfer was intended as a gift and they do not hold the asset “on trust” for the transferring party. But for those few categories of relationship where the presumption of advancement applies, it is up to another party seeking to allege the gift is held on resulting trust to disprove the presumption of advancement.

How the High Court ruled

The High Court’s decision in Bosanac v Commissioner of Taxation [2022] HCA 34 came about after the tax office sought a declaration that half of a property that Mrs Bosanac was the sole owner of in the Perth suburb of Dalkeith was held on trust by her for her husband, who she had since separated from. The ATO sought the declaration in an effort to recoup a tax debt owed by the husband to the ATO. The property had been purchased for $4.5m in 2006 with joint loans the couple had taken out. The ATO argued that where a husband and wife have each contributed purchase funds it should be presumed that both intended to each have a one-half interest in the property. It called for the presumption of advancement to be abolished, describing the principal behind it as “anomalous, anachronistic, and discriminatory”.

While describing the categories of relationships that do (and do not) give rise to a presumption of advancement as “inconsistent and discriminatory”, Justice Gageler stated in his judgement that unless the parliament takes some steps to modify them, the duelling presumptions “are here to stay”.

Justice Kiefel and Gleeson acknowledged there was a question whether the presumption of advancement should apply more generally between relationships between spouses, however said these were not issues that arose in the appeal. They said “much has changed with respect to the various ways in which spouses deal with property”, continuing “when evidence of this kind is given, inferences to the contrary of the presumptions as to intention may readily be drawn”. In reaching its decision that Mrs Bosanac did not hold half of the property on trust for her husband, ultimately the court did not rely on the presumption of advancement but reached its opinion based on the evidence before it of her and her husband’s intentions at the time of the purchase.

Arguments about presumptions of advancement or resulting trust arise commonly in deceased estate disputes and sometimes in Guardianship disputes when disputing parties clash about the beneficial ownership of assets. In Wilkins v Wilkins [2007] VSC 2007 a beneficiary of a deceased estate was successful in overcoming the presumption of advancement and obtaining a declaration that a farming property purchased by his parents for two of his brothers in 1976 was beneficially owned by his deceased mother’s estate, entitling him to a share of it. The use of the farming property had been shared by the parents and the brothers and the payment by the mother of most of the rates for the property was amongst the evidence sufficient to overcome the presumption of advancement.

What does this mean for those making and receiving gifts?

Ultimately, these presumptions are just that – presumptions of law that can be overcome with evidence, and the best form of evidence is a contemporaneous legal agreement or other documentation that sets out exactly what was intended.

If a parent purchases an asset in their child’s name but regards themselves as retaining some legal interest in it, the parents intentions should be documented. Leaving the question to be resolved by their surviving family after their death can tear families apart and the passage of time may make obtaining evidence of the parties’ intentions an insurmountable hurdle. Conversely, where (for instance) a person wants to acquire an asset as a gift for their de-facto partner, or a grandparent wishes to provide a benefit to a grandchild, legal advice should be obtained and the intention to make the gift should be explicitly documented.

For married couples in which only one party has commercial risk and it is intended that an asset acquisition be only beneficially owned by the recipient spouse, there is a range of documentation that needs to be considered. The effects of such transactions on the parties’ estate planning also needs to be considered, as well as any litigation risk that may result from the transaction.

How we can help

Legal advice is essential before entering such transactions, which can have tax, pension and other implications. Please get in contact with our Private Clients team if you would like more information or advice pertaining to presumptions of advancement.

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