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Disputes When a Parent Gives Money to a Child to Buy a Property: Explaining the Presumption of Advancement

By 23 June 2023June 26th, 2023Estate Planning
Disputes When a Parent Gives Money to a Child to Buy a Property: Explaining the Presumption of Advancement

A recent case in the New South Wales Court of Appeal, Koprivnjak v Koprivnjak 2023 NSWCA 2, dealt with the presumption of advancement and the application of this equitable doctrine to a property transaction between a father and a daughter.

The case revolved around a payment of $75,000 made by the father to his daughter for the purchase of a real estate property. To understand the dispute, in which the father said the money given to his daughter was a loan, while she claimed it was a gift, it is first necessary to briefly explain the presumption of advancement doctrine.

The legal concept dates back to 17th century England and presumes that transfers of assets from husbands to wives, male fiancés to female fiancés and from parents to children are gifts, in the absence of any evidence to the contrary. In relation to parents and children, as the Koprivnjak case deals with, the presumption is based on society’s expectation that parents naturally intend to advance their children’s interests and promote their financial wellbeing.

The presumption, however, can be rebutted if sufficient evidence is presented to prove that the transfer was intended as a loan or an investment rather than a gift. In this case, a resulting trust may be presumed where the legal title of the property – in this case in the name of the daughter – does not reflect the contributions to the purchase price, so that the person with legal title holds the property on trust for the person who made the contribution.

The details of the Koprivnjak case

In the case of Koprivnjak, the daughter purchased a rental property in Shoal Bay, NSW for $300,000 in 2011. Her father provided $75,000 to his daughter to assist her in purchasing the property, comprising $15,000 for the deposit and a further $60,000 towards the purchase price. The property was later sold and the proceeds placed in a trust account until the dispute between the estranged family members was resolved.

The father argued that the payment was a loan that gave him a beneficial interest in the property, while the daughter claimed it was a gift. The primary issue before the court was whether the presumption of advancement applied, and if so, whether the father had successfully rebutted it.

The court heard evidence from both parties to determine the true nature of the transaction and considered factors such as the relationship between the father and daughter, the financial circumstances of both parties, and the intention behind the transfer. The court noted that the presumption of advancement applies when a parent provides financial assistance to a child, particularly in cases involving property transactions.

The findings of the court

In the first instance the court rejected the father’s claim the property was held on trust for him by his daughter, finding he failed to discharge his onus of establishing a trust to rebut the presumption of advancement. His loan claim, however, was accepted and an order made that the loan and interest be paid to the father from the sale proceeds, with the remainder to be paid to his daughter.

The father appealed the judgement in relation to the trust argument. His appeal was dismissed with costs, the court of appeal finding in the father’s evidence that he could not prove the intention was for the property to be held on resulting trust, determined at the time of purchasing the property.

Instead, the evidence suggested that the father had intended the payment as a gift, supporting the daughter’s claim. The court emphasised that the presumption of advancement can only be rebutted through clear and compelling evidence that demonstrates a different intention.

The judgement cited the High Court case of Bosanac v Commissioner of Taxation [2022] HCA 34 (‘Bosanac’), whereby the court must look at the objective facts and enquire into the parties’ words or conduct at the time of the transaction (or immediately after the transaction) to determine the parties’ objective intention as to who has beneficial ownership of the property.

Lessons from the case and the need for good legal advice

While the presumption of advancement has been described as ‘anomalous, anachronistic, and discriminatory’ by the Australian Taxation Office (in Bosanac), the ruling in the Koprivnjak case reinforces the significance of the doctrine in property transactions between parents and children. Where parents make substantial financial contributions to their children, these transfers are generally presumed to be gifts. The burden of proving otherwise generally requires strong documentary evidence the parent/s intended the money as a loan giving them a beneficial interest in the property.

If you’re still uncertain about how this legal principle operates and are in a family situation where you’re lending money to a child, or receiving funds from a parent for a property purchase, contact our friendly, professional team at Felicio Law Firm before doing so to avoid any later disputes.