American Express Wholesale Currency Services Pty Ltd v Commissioner of Taxation; American Express International Inc v Commissioner of Taxation

The High Court of Australia considered appeals from the Full Federal Court concerning the deductibility of 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 fluctuations in currency values between the time of entering into forward exchange contracts and their settlement, constituted outgoings of a capital or revenue nature. Specifically, the Court had to determine if these losses were incurred in gaining or producing assessable income or were otherwise necessarily incurred in carrying on a business for the purpose of gaining assessable income, pursuant to section 82(1) of the *Income Tax Assessment Act 1936* (Cth) (now s 8-1 of the *Income Tax Assessment Act 1997* (Cth)).

The High Court, by majority, held that the foreign exchange losses were revenue in nature and therefore deductible. The Court reasoned that the forward exchange contracts were entered into by the companies as part of their ordinary course of business, which involved managing currency risk associated with their international operations and funding. The losses were not incurred in the acquisition or disposal of capital assets, but rather as an incident of carrying on their revenue-producing activities. The Court applied the principles established in *FC of T v. The Myer Emporium Ltd* and *John v. FC of T*, focusing on the character of the expenditure in the context of the taxpayer's business operations. The losses were an integral part of the cost of conducting the business and managing its financial exposures.

The appeals were allowed, and the Commissioner was ordered to pay the costs of the appellants.