MAWSON & MAWSON

The parties to this proceeding were Mawson & Mawson Pty Ltd (the applicant) and the Commissioner of Taxation (the respondent). The applicant sought judicial review of the respondent's decision to disallow its objection to an assessment of income tax for the 2017 income year. The dispute concerned the deductibility of certain expenses incurred by the applicant. The matter came before Kent J of the Federal Court of Australia.

The primary legal issue before the court was whether the expenses incurred by the applicant, which were described as "management fees" paid to a related entity, 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 were necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. The court also considered whether the expenses were of a capital, or of a capital, or of a private or domestic nature.

Kent J reasoned that the deductibility of expenses under section 8-1 hinges on a two-limbed test: first, whether the expenditure has the character of an outgoing incurred in gaining or producing assessable income; and second, whether it is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. His Honour found that the management fees, while paid to a related entity, were demonstrably incurred for services that facilitated the applicant's business operations and the generation of its assessable income. The court applied the principles established in cases such as *Ronpibib Investments Pty Ltd v FC of T* and *South Australian Battery Makers Pty Ltd v FC of T*, focusing on the objective character of the expenditure and its connection to the applicant's income-producing activities. The court concluded that the expenses were not of a capital nature, nor were they private or domestic.

The court allowed the application for judicial review, setting aside the Commissioner's objection decision and remitting the objection to the Commissioner for reconsideration according to law.