Federal Express Corporation

The Federal Court of Australia, constituted by Justice T. E. Williams, considered a dispute between Federal Express Corporation and the Commissioner of Taxation. The core of the disagreement concerned the deductibility of certain expenses incurred by Federal Express Corporation in the 1991 and 1992 income years. Specifically, the taxpayer sought to deduct expenses related to the acquisition of shares in a subsidiary company, Federal Express Australia Pty Ltd, which was established to conduct its air express freight operations within Australia.

The primary legal issue before the Court was whether these expenses, which included costs associated with the incorporation of the subsidiary, the transfer of assets to it, and the initial capitalisation, constituted allowable deductions under section 82 of the *Income Tax Assessment Act 1936* (Cth) (the Act). The Commissioner had disallowed these deductions, arguing they were capital in nature and therefore not deductible. The taxpayer contended that the expenses were incurred in the course of carrying on its business and were therefore deductible under the general deduction provisions of the Act.

Justice Williams reasoned that the expenses were incurred in the establishment of a new business structure, namely the subsidiary company, rather than in the carrying on of an existing business. The Court applied the established principle that expenditure incurred in the acquisition of a capital asset or in the formation of a company to carry on a business is generally of a capital nature and not deductible. The Court found that the expenses were inextricably linked to the creation of the subsidiary and the acquisition of its shares, which represented a capital outlay for the taxpayer. Consequently, the expenses were not deductible under section 82 of the Act.