Commissioner of Taxation v Kiwi Brands P-L

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 Kiwi Brands Pty Ltd (Kiwi Brands) from a judgment of a single judge of the Federal Court. The dispute concerned the deductibility of certain expenses incurred by Kiwi Brands in relation to its business operations.

The High Court was required to determine whether the Full Federal Court had erred in finding that the expenses incurred by Kiwi Brands were deductible under section 8-1 of the *Income Tax Assessment Act 1997* (Cth). Specifically, the court had to consider whether these 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.

The High Court, in allowing the Commissioner's appeal, held that the Full Federal Court had misapplied the principles established in *Sun Newspapers Ltd v Federal Commissioner of Taxation* and *Charles Moore & Co (W.A.) Pty Ltd v Federal Commissioner of Taxation*. Their Honours found that the expenses in question were not deductible as they were not incurred in the process of gaining or producing assessable income, nor were they necessarily incurred in carrying on the business for that purpose. Instead, the expenses were found to be of a capital nature, relating to the establishment and structure of the business rather than its day-to-day operations.

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