Foster & Foster

In *Foster & Foster*, the parties were the applicants, Foster & Foster, and the respondent, the Commissioner of Taxation. The dispute concerned the deductibility of certain expenses incurred by the applicants, which the Commissioner had disallowed. The matter came before Moore J of the Federal Court of Australia.

The primary legal issue before the Court was whether the expenses incurred by the applicants, which were described as "management fees" and "consulting fees," were deductible under section 8-1 of the *Income Tax Assessment Act 1997* (Cth). This required the Court to determine if the 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.

Moore J applied the well-established principles for determining deductibility under section 8-1. His Honour considered the nature of the expenditure and its connection to the applicants' business activities. The Court found that the management and consulting fees were not deductible because they were not sufficiently connected to the earning of assessable income. Instead, they were found to be capital in nature, relating to the establishment of the applicants' business structure rather than its day-to-day operation. The Court distinguished between expenses incurred in the process of establishing or restructuring a business, which are generally capital, and those incurred in the course of carrying on an existing business, which may be revenue.

The Court therefore dismissed the applicants' appeal and affirmed the Commissioner's assessment.