Licha & Wunscher (No. 3)

In *Licha & Wunscher (No. 3)*, the parties were the applicants, Licha and Wunscher, and the respondent, the Commissioner of Taxation. The dispute concerned the deductibility of certain expenses claimed by the applicants as business expenses under section 8-1 of the *Income Tax Assessment Act 1997* (Cth). The matter came before Bennett J of the Federal Court of Australia.

The primary legal issue before the Court was whether the expenses incurred by the applicants, which were related to the acquisition and operation of a property used for both private and business purposes, were deductible. Specifically, the Court had 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, and if any part of the expenses was of a private or domestic nature, thereby rendering it non-deductible under section 8-1(2).

Bennett J reasoned that the expenses were not deductible because they were not incurred in the course of carrying on a business. The Court found that the applicants had not established that they were carrying on a business in relation to the property at the relevant times. Instead, the use of the property was predominantly for private purposes, and the expenses were therefore of a private or domestic nature, or alternatively, were not sufficiently connected to the gaining or production of assessable income. The Court applied the principles established in cases such as *FCT v. Income Tax Special Purposes Commissioner* and *Ronpibip Tin Dredging Co. Ltd v. FCT*, emphasising the need for a clear nexus between the expenditure and the business activity.

The Court ordered that the applicants' objection to the amended assessments be disallowed.