American Express Wholesale Currency Services Pty Ltd v Commissioner of Taxation; American Express International Inc v Commissioner of Taxation [2011] HCATrans 26

The High Court of Australia heard appeals from the Full Federal Court concerning the deductibility of certain foreign exchange losses incurred by American Express Wholesale Currency Services Pty Ltd and American Express International Inc. The Commissioner of Taxation disallowed these deductions, leading to the dispute.

The central legal issue before the High Court was whether the foreign exchange losses, arising from the fluctuation in the value of foreign currencies held by the companies, were incurred in gaining or producing assessable income or were necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, within the meaning of s 8-1 of the *Income Tax Assessment Act 1997* (Cth).

The High Court, in a joint judgment, held that the losses were deductible. Their Honours reasoned that the foreign exchange losses were an inherent incident of carrying on a business that involved dealing in foreign currencies. The companies' business was to provide foreign exchange services, and the fluctuations in currency values were a direct consequence of the nature of that business. The losses were therefore incurred in the course of carrying on that business for the purpose of gaining assessable income. The Court distinguished this situation from cases where foreign exchange losses arise from the mere holding of foreign currency as a capital asset. The appeals were allowed.