Drover & Glasson and Anor

The parties to this proceeding were Drover & Glasson and two other individuals, who were the applicants, and the respondent, who was the Commissioner of Taxation. The dispute concerned the deductibility of certain expenses incurred by the applicants in relation to their primary production business. The matter came before Watts J of the Supreme Court of Western Australia.

The primary legal issue before the Court was whether the expenses claimed by the applicants, which related to the acquisition and maintenance of certain land, were deductible under section 8-1 of the *Income Tax Assessment Act 1997* (Cth). Specifically, the Court had to determine if these expenses were incurred in gaining or producing assessable income, or if they were necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.

Watts J reasoned that the expenses were not deductible. His Honour applied the principles established in cases such as *Ronpibip Tin Dredging Co Ltd v Federal Commissioner of Taxation* and *Charles Moore & Co (W.A.) Pty Ltd v Federal Commissioner of Taxation*, which distinguish between capital expenditure and revenue expenditure. The Court found that the expenditure in question was of a capital nature, being incurred to acquire and improve land which formed the structure of the business, rather than being part of the day-to-day operations of the business. Consequently, the expenses were not deductible under section 8-1.

The Court ordered that the applicants' objection to the amended assessment be disallowed.