Federal Commissioner of Taxation v Myer Emporium Ltd (No 1)

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 interest expenses incurred by Myer Emporium Ltd (Myer). The dispute centred on whether interest paid by Myer on loans, which were used to fund the acquisition of shares in a subsidiary company, constituted a deductible outgoing under section 51(1) of the *Income Tax Assessment Act 1936* (Cth).

The primary legal issue before the High Court was whether the interest expenses were incurred in gaining or producing assessable income, or alternatively, were necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. The Commissioner contended that the expenditure was of a capital nature and therefore not deductible, while Myer argued that the interest was an allowable deduction.

Dawson J, in delivering the judgment of the High Court, applied the principles established in *Sun Newspapers Ltd v Federal Commissioner of Taxation* and *Amalgamated Zinc (Australia) Ltd v Federal Commissioner of Taxation*. His Honour held that the purpose for which the borrowed moneys were applied was determinative of the character of the expenditure. In this instance, the loans were applied to acquire shares in a subsidiary, which was an operation of a capital nature. Consequently, the interest paid on those loans was also of a capital nature and not deductible under section 51(1). The appeal was allowed.