Commissioner of Taxation of the C of A v ANZ Banking Group

The Commissioner of Taxation of the Commonwealth of Australia (the Commissioner) appealed to the High Court of Australia against a decision of the Federal Court of Australia concerning the deductibility of certain expenses incurred by ANZ Banking Group (ANZ). The dispute centred on whether these expenses, incurred in connection with the acquisition of shares in a company that was subsequently demerged, were deductible under section 82A of the *Income Tax Assessment Act 1936* (Cth) (the Act).

The High Court was required to determine whether the expenses incurred by ANZ in acquiring shares in a target company, which were then distributed to ANZ shareholders as part of a demerger, constituted outgoings of a capital, private or domestic nature. Specifically, the court had to consider whether these expenses were incurred for the purpose of gaining or producing assessable income, or for the purpose of carrying on a business for that purpose, as contemplated by section 82A of the Act.

The court reasoned that the expenses were not deductible as they were of a capital nature. Brennan and Dawson JJ held that the acquisition of shares in the target company was an operation of a capital character, undertaken to facilitate the demerger and restructure ANZ's business. The purpose of the expenditure was to achieve a capital reorganisation rather than to produce assessable income in the ordinary course of business. Consequently, the expenses did not fall within the ambit of section 82A, which requires outgoings to be of a revenue nature to be deductible.