Nest & Nest (No 3)

The parties to this proceeding were Nest & Nest (No 3) 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, specifically relating to the acquisition and development of a property. The matter came before Berman J of the Federal Court of Australia.

The primary legal issue before the court was whether the expenses incurred by the applicant in relation to the property were deductible under section 8-1 of the *Income Tax Assessment Act 1997* (Cth). This required the court to determine whether 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. A related issue was whether the expenses were of a capital, or of a capital, nature, and therefore not deductible under section 8-1.

Berman J reasoned that the applicant's activities in acquiring and developing the property were undertaken with the sole purpose of selling it for profit, thereby gaining assessable income. The court applied the established principles that expenses incurred in the course of carrying on a business for the purpose of gaining assessable income are deductible, provided they are not of a capital nature. His Honour found that the expenses were directly related to the business of property development and resale, and were not capital in nature as they were part of the cost of goods sold in the applicant's profit-making venture.

The court ordered that the applicant's application for judicial review be allowed, and that the respondent's decision be set aside. The matter was remitted to the respondent for redetermination in accordance with the court's findings.