Deputy Commissioner of Taxation v Mac

The Deputy Commissioner of Taxation (DTC) sought to recover unpaid income tax from Mr Mac. The dispute concerned whether Mr Mac was entitled to a deduction for a loss he claimed to have incurred on the sale of shares in a company, Macarthur Holdings Pty Ltd. The Administrative Appeals Tribunal had previously allowed Mr Mac's objection against the DTC's assessment, finding that the loss was deductible. The DTC appealed this decision to the Federal Court.

The primary legal issue before the Federal Court was whether the loss incurred by Mr Mac on the sale of his shares in Macarthur Holdings Pty Ltd was a capital loss or a revenue loss, and consequently, whether it was deductible under the *Income Tax Assessment Act 1936* (Cth). The court had to determine the character of the loss, considering the nature of Mr Mac's involvement with the company and the purpose for which he held the shares.

Judge Smith reasoned that the deductibility of a loss depends on its characterisation as either revenue or capital. He applied the principles established in cases such as *Sun Newspapers Ltd v Federal Commissioner of Taxation* and *FC of T v Brown*, which distinguish between losses arising from the carrying on of a business (revenue) and losses arising from the disposal of capital assets. His Honour found that Mr Mac's acquisition and disposal of the shares were not part of a business operation or profit-making scheme, but rather an investment. Therefore, the loss was of a capital nature and not deductible.

The appeal was allowed, and the decision of the Administrative Appeals Tribunal was set aside.