Commissioner of Taxation v Energy Resources of Australia Ltd

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 Energy Resources of Australia Ltd (ERA) from a judgment of a single judge of the Federal Court. The dispute concerned the deductibility of certain expenditure incurred by ERA in relation to its Ranger Uranium Mine.

The High Court was required to determine whether expenditure incurred by ERA on the rehabilitation of the Ranger Uranium Mine, which was undertaken pursuant to a statutory obligation under the *Atomic Energy Act 1953* (Cth) and the Ranger Project Agreement, constituted a loss or outgoing of a capital, or of a capital nature, and was therefore not deductible under section 8-1 of the *Income Tax Assessment Act 1997* (Cth). A further issue was whether the expenditure was deductible under section 25-5 of the *Income Tax Assessment Act 1997* (Cth) as a loss or outgoing incurred in gaining or producing assessable income.

McHugh and Kirby JJ, in separate judgments, allowed the Commissioner's appeal. McHugh J held that the expenditure was of a capital nature because it was incurred to restore the mine to a condition that would satisfy the requirements of the relevant legislation and agreement, thereby enabling ERA to continue its mining operations and thus gain assessable income in the future. His Honour considered that the expenditure was not merely incidental to the business but was fundamental to its continued operation and the preservation of its capital asset. Kirby J, while acknowledging the complexity of the issue, also found the expenditure to be of a capital nature, reasoning that it was incurred to fulfil a long-term obligation that was intrinsically linked to the establishment and operation of the mine, and was not part of the ordinary course of business. Both judges found that the expenditure did not fall within section 25-5.

The High Court ordered that the appeal be allowed, setting aside the judgment of the Full Federal Court and restoring the judgment of the Federal Court.