BDO v The Queen

The High Court of Australia considered an appeal by BDO (a firm of accountants) against a decision of the Full Federal Court. The dispute concerned the deductibility of certain expenses incurred by BDO in relation to a tax avoidance scheme. The Commissioner of Taxation had disallowed these deductions, and the Full Federal Court had upheld that decision.

The primary legal issue before the High Court was whether the expenses incurred by BDO were deductible under section 8-1 of the *Income Tax Assessment Act 1997* (Cth). This required the Court to determine whether the expenses 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, and whether they were of a capital, or of a private or domestic nature. A related issue concerned the application of the general anti-avoidance provisions in Part IVA of the *Income Tax Assessment Act 1936* (Cth).

Kiefel CJ and Gordon J, in separate but concurring judgments, found that the expenses were not deductible. Their Honours reasoned that the expenses were not incurred in the carrying on of BDO's business, but rather in relation to a scheme designed to generate tax benefits. The Court held that the dominant purpose of the expenditure was to obtain a tax advantage, and therefore the expenses were not deductible under section 8-1. Furthermore, the Court found that the scheme had the character of tax avoidance, and thus Part IVA applied to deny the deductions.

The appeal was dismissed.