Federal Commissioner of Taxation v ANZ Savings Bank Ltd

The Federal Commissioner of Taxation (the Commissioner) appealed to the High Court of Australia against a decision of the Full Federal Court concerning the deductibility of certain expenses incurred by ANZ Savings Bank Ltd (ANZ). The dispute centred on whether these expenses, incurred in the acquisition of a business, were capital in nature and therefore not deductible under section 51(1) of the *Income Tax Assessment Act 1936* (Cth).

The High Court was required to determine whether the expenses incurred by ANZ in acquiring the business of another entity were of a capital nature. This involved considering the application of section 51(1) of the *Income Tax Assessment Act 1936* (Cth) to these acquisition costs, and whether they 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.

The Court, in a joint judgment, held that the expenses were of a capital nature. Their Honours reasoned that the acquisition of a business represented the acquisition of an asset, and the costs associated with such an acquisition were inherently capital. The Court applied the established principles distinguishing between capital and revenue expenditure, noting that expenditure that secures or improves a profit-yielding structure is generally capital, whereas expenditure that is part of the process of operating that structure is revenue. The Court found that the expenses were incurred once and for all to acquire the business structure, rather than being part of the ongoing operations of ANZ.

The appeal was allowed, and the Full Federal Court's decision was set aside. The Commissioner was successful in arguing that the expenses were not deductible.