Keyet & Keyet

In *Keyet & Keyet*, the parties were the applicants, Mr. and Mrs. Keyet, and the respondent, the Commissioner of Taxation. The dispute concerned the Commissioner's assessment of income tax against the Keyets for the 2017 and 2018 income years, specifically relating to the deductibility of certain expenses incurred by Mr. Keyet in his capacity as a director of a company. The matter came before Macmillan J of the Federal Court of Australia.

The primary legal issue before the Court was whether the expenses incurred by Mr. Keyet, which included payments to his wife for administrative assistance and the cost of a car used for business purposes, were properly 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.

Macmillan J reasoned that for an expense to be deductible under section 8-1, it must have a sufficient nexus to the taxpayer's assessable income. In relation to the payments to Mrs. Keyet, the Court found that while some assistance was provided, the amount paid was not demonstrably for services rendered in the production of Mr. Keyet's assessable income, and thus not deductible. Regarding the car expenses, the Court determined that the use of the vehicle was not solely for the purpose of producing assessable income, with significant private use evident, precluding deductibility. The Court applied the principles established in cases such as *Ronpibip Nominees Pty Ltd v FC of T* and *FCT v Snowden* concerning the characterisation of expenses and the necessity of their connection to income production.

The Court upheld the Commissioner's assessment, finding that the expenses in question were not deductible. Consequently, the application by the Keyets was dismissed.