Addy v Commissioner of Taxation

The case of *Addy v Commissioner of Taxation* concerned a dispute between the taxpayer, Mr Addy, and the Commissioner of Taxation regarding the deductibility of certain expenses. The matter was heard by Gageler and Gordon JJ of the High Court of Australia.

The central legal issue before the High Court was whether the expenses incurred by Mr Addy in relation to his participation in a scheme designed to generate capital losses were deductible under section 8-1 of the *Income Tax Assessment Act 1997* (Cth). This required the Court to consider whether the expenses were incurred in gaining or producing assessable income, or in carrying on a business for that purpose.

The High Court held that the expenses were not deductible. Their Honours reasoned that the scheme was not entered into for the purpose of gaining or producing assessable income, but rather for the sole purpose of creating a tax loss. The scheme lacked any commercial reality or prospect of profit, and its sole objective was to exploit tax legislation. Consequently, the expenses were not incurred in the course of gaining or producing assessable income, nor were they incurred in carrying on a business. The Court applied the principles established in cases such as *FCT v Roxy Trading Co Pty Ltd* and *White v FCT*, which emphasise the need for a genuine commercial purpose or a businesslike approach when claiming deductions.

The appeal was dismissed, and the taxpayer was ordered to pay the Commissioner's costs.