Com of Tax v Consolidated Press

The Commissioner of Taxation (the Commissioner) appealed to the High Court of Australia against a decision of the Full Federal Court, which had allowed an appeal by Consolidated Press Holdings Limited (Consolidated Press) from a judgment of a single judge of the Federal Court. The dispute concerned the deductibility of certain interest expenses incurred by Consolidated Press in relation to a loan facility.

The primary legal issue before the High Court was whether the interest paid by Consolidated Press on a loan facility, which was used to acquire shares in a company that subsequently paid a dividend, was an allowable deduction under section 8-1 of the *Income Tax Assessment Act 1997* (Cth). This involved determining whether the expenditure was incurred in gaining or producing assessable income or was necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.

The High Court, in a joint judgment of Gaudron, McHugh and Kirby JJ, held that the interest was not deductible. Their Honours reasoned that the purpose of the expenditure was to acquire an income-producing asset, namely the shares, and not to produce income directly. The acquisition of shares was seen as a capital outlay, and the interest incurred in financing such an outlay was therefore of a capital nature. The court applied the principle that expenditure incurred for the purpose of acquiring a capital asset, even if that asset is intended to produce income, is generally not deductible. The fact that the dividend was assessable income did not alter the character of the expenditure as capital.

The appeal was allowed, and the judgment of the Full Federal Court was set aside. The original judgment of the Federal Court, which had found the interest not to be deductible, was reinstated.