Commissioner of Taxation v Selleck

The Commissioner of Taxation (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 Mr. Selleck. The dispute centred on whether these expenses, related to the acquisition of shares in a company that subsequently became insolvent, were deductible under section 8-1 of the *Income Tax Assessment Act 1997* (Cth) as outgoings incurred in gaining or producing assessable income, or alternatively, as losses or outgoings incurred in carrying on a business for the purpose of gaining assessable income.

The High Court was required to determine whether the Federal Court had erred in finding that the expenses incurred by Mr. Selleck in acquiring the shares were deductible. Specifically, the court had to consider whether the dominant purpose for which the shares were acquired was to produce assessable income, and whether the expenditure was of a capital or revenue nature. The Commissioner contended that the expenditure was capital in nature and therefore not deductible.

Gaudron and Gummow JJ held that the expenditure was of a capital nature and not deductible. Their Honours reasoned that the acquisition of shares in a company, even for the purpose of deriving dividends, is generally an investment of a capital nature. The intention to derive income from the shares does not, of itself, render the expenditure revenue. The court applied the established principles distinguishing between capital and revenue outgoings, noting that the expenditure was directed towards acquiring an asset that would yield income over time, rather than being an expense incurred in the process of earning income. The appeal was allowed.