Commissioner Of Taxation v Consolidated Media Holdings Ltd (ACN 009 071 167)

The High Court of Australia considered the appeal by the Commissioner of Taxation against the decision of the Full Federal Court in relation to Consolidated Media Holdings Ltd. The dispute concerned the deductibility of interest expenses incurred by Consolidated Media Holdings Ltd on loans used to acquire shares in another company, which was a step in a larger corporate restructuring.

The central legal issue before the High Court was whether the interest expenses were incurred in gaining or producing assessable income, or alternatively, whether they 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). This required the Court to determine the character of the expenditure and its connection to the taxpayer's business operations and income-producing activities.

The High Court, by majority, held that the interest expenses were not deductible. The Court reasoned that the acquisition of shares in the target company was an investment, and the interest expense was incurred on capital borrowed for the purpose of acquiring that investment. While the taxpayer was engaged in a business of investment, the specific expenditure on acquiring shares was not considered to be part of the carrying on of that business in the relevant sense for the purpose of s 8-1. The Court distinguished between the business of investing and the act of making an investment, finding that the interest was incurred on capital for the latter, rather than in the course of the former. The appeal was allowed.