Mayfield v Commissioner of Taxation (No 2)

The applicant, Mayfield, sought to recover from the Commissioner of Taxation (the Commissioner) certain sums of money paid by way of income tax for the years ended 30 June 1955 and 30 June 1956. The dispute concerned the deductibility of certain expenses incurred by the applicant in connection with the acquisition of shares in a company.

The primary legal issue before Menzies J was whether the expenses incurred by the applicant in acquiring shares in a company, which were then used to discharge a debt owed by the applicant, constituted a loss or outgoing of a capital, private or domestic nature, and therefore were not deductible under section 51(1) of the *Income Tax and Social Services Contribution Assessment Act 1936* (Cth).

Menzies J reasoned that the expenditure was incurred for the purpose of acquiring an asset, namely shares, which were then applied to satisfy a pre-existing debt. His Honour held that the expenditure was not an outgoing incurred in gaining or producing assessable income, nor was it an outgoing necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. Instead, the expenditure was of a capital nature, representing the cost of acquiring an asset that was then used to discharge a liability. Consequently, the expenses were not deductible.