McClure & Ors v Comm of Aust

McClure and others (the taxpayers) appealed to the High Court of Australia against a decision of the Federal Court of Australia concerning the deductibility of certain expenses. The dispute centred on whether the taxpayers were entitled to deduct expenditure incurred in acquiring shares in a company, which they argued was for the purpose of carrying on a business. The Commissioner of Taxation (the Commissioner) had disallowed these deductions.

The primary legal issue before the High Court was whether the expenditure incurred by the taxpayers in acquiring shares was deductible under section 8-1 of the *Income Tax Assessment Act 1997* (Cth). This required the court to determine whether the expenditure was incurred in gaining or producing assessable income, or in carrying on a business, and whether it was of a capital, or of a capital, nature. The court also considered whether the expenditure was of a revenue or capital nature.

Gaudron and McHugh JJ, in their joint judgment, held that the expenditure was not deductible. They reasoned that the acquisition of shares in a company, in circumstances where the taxpayer does not control the company, is generally an investment of a capital nature. While the purpose of the investment might be to derive income, the expenditure itself is directed towards acquiring a capital asset. The judges distinguished this from expenditure incurred in the course of carrying on a business, which might include the acquisition of shares for the purpose of facilitating that business. In this instance, the taxpayers' expenditure was directed towards acquiring an investment, not towards the operational costs of a business.

The appeal was dismissed.