CPH Property Pty Limited v Commissioner of Taxation S132/2000

CPH Property Pty Limited (the taxpayer) appealed to the High Court of Australia against a decision of the Full Federal Court, which had affirmed a decision of a single judge of the Federal Court. The dispute concerned the deductibility of certain expenditure incurred by the taxpayer in acquiring shares in a company, which the Commissioner of Taxation (the Commissioner) had disallowed.

The primary legal issue before the High Court was whether the expenditure incurred by the taxpayer in acquiring shares in a company, which was part of a larger scheme to acquire the business of another company, constituted a loss or outgoing incurred in gaining or producing assessable income, or alternatively, whether it was an allowable deduction under section 8-1 of the *Income Tax Assessment Act 1997* (Cth). A related issue was whether the expenditure was of a capital nature, and therefore not deductible.

The High Court, in a joint judgment, held that the expenditure was not deductible. Their Honours reasoned that the expenditure was incurred in the acquisition of a capital asset, namely the shares in the company, which was a step in the process of acquiring the business. The purpose of the expenditure was to acquire the shares, and the nature of the expenditure was capital. The Court applied the principles established in cases such as *Sun Newspapers Ltd v Federal Commissioner of Taxation* and *FC of T v Spathis*, which distinguish between outgoings on revenue account and outgoings on capital account. The Court found that the expenditure was not incurred in the carrying on of the taxpayer's business, but rather in the establishment of a new capital asset.

The appeal was dismissed.