Marklew & Marklew

The parties in this matter were the applicants, Marklew & Marklew, and the respondent, the Commissioner of Taxation. The dispute concerned the deductibility of certain expenses incurred by the applicants, a firm of solicitors, in relation to a property development venture. The applicants sought to deduct these expenses under section 8-1 of the *Income Tax Assessment Act 1997* (Cth). The Commissioner disallowed the deductions, leading to the applicants' appeal to the Federal Court of Australia.

The primary legal issue before the Court was whether the expenses incurred by the applicants in relation to the property development were deductible as outgoings incurred in gaining or producing assessable income, or alternatively, whether they were outgoings of capital or of a capital, private or domestic nature. This involved an examination of the nature of the expenditure and its connection to the applicants' business as solicitors.

Carter J applied the established principles for determining the deductibility of expenses, particularly the two limbs of section 8-1 of the *Income Tax Assessment Act 1997* (Cth). His Honour considered the applicants' argument that the property development was an ancillary activity to their legal practice, undertaken to generate income. However, His Honour found that the nature of the expenditure was capital in character, relating to the acquisition and development of an asset, rather than an expense incurred in the ordinary course of earning their assessable income as solicitors. The Court distinguished the present case from those where expenditure on property might be considered revenue in nature, such as where it is part of a business of property dealing.

The Court therefore dismissed the applicants' appeal, upholding the Commissioner's disallowance of the deductions.