Grant v Federal Commissioner of Taxation

Grant (the taxpayer) appealed to the Full Federal Court against a decision of the Commissioner of Taxation (the Commissioner) disallowing his objection to an assessment of income tax for the year ended 30 June 1971. The dispute concerned the deductibility of certain expenses incurred by the taxpayer in connection with the sale of shares in a private company, Grant & Sons Pty Ltd. The Commissioner had disallowed these expenses on the basis that they were of a capital nature.

The primary legal issue before the Full Federal Court was whether the expenses incurred by the taxpayer in relation to the sale of his shares were deductible under section 51(1) of the *Income Tax Assessment Act 1936* (Cth) as outgoings incurred in gaining or producing assessable income, or whether they were of a capital nature and therefore not deductible. This required the Court to consider the distinction between outgoings on revenue account and outgoings on capital account in the context of the sale of shares in a company.

The Court, applying established principles, held that the expenses were not deductible. It reasoned that the sale of shares in a company, even where the taxpayer's business involved dealing in shares, represented a disposal of a capital asset. The expenses incurred in connection with this disposal were therefore capital in nature. The Court distinguished between the costs of acquiring or holding an income-producing asset (which may be revenue in nature) and the costs of disposing of that asset, which are generally capital. The taxpayer's argument that the sale was part of his business operations was not accepted as sufficient to render the disposal costs revenue outgoings.

The appeal was dismissed.