Ready Mixed Concrete (Vic) Pty Ltd v Federal Commissioner of Taxation

Ready Mixed Concrete (Vic) Pty Ltd (the taxpayer) appealed to the High Court of Australia against a decision of the Federal Commissioner of Taxation (the Commissioner) to disallow a deduction for certain payments made by the taxpayer. The dispute concerned the deductibility of payments made by the taxpayer to its managing director, Mr. A. J. Gair, under a contract for the supply of his services. The Commissioner had assessed the taxpayer for additional income tax on the basis that these payments were not deductible as outgoings incurred in gaining or producing assessable income under section 51(1) of the *Income Tax Assessment Act 1936* (Cth).

The High Court was required to determine whether the payments made by the taxpayer to Mr. Gair constituted an outgoing of the taxpayer of a capital, or of a capital, nature, or an outgoing of a revenue nature. Specifically, the court had to consider whether the payments were made for the acquisition of an enduring asset or for the purpose of carrying on the business.

Kitto J, delivering the judgment of the Court, reasoned that the payments were made under a contract for services, not for the acquisition of an asset. The contract was for the personal services of Mr. Gair, which were essential to the carrying on of the taxpayer's business. The payments were therefore revenue outgoings incurred in the production of assessable income. The Court applied the principle that outgoings incurred in gaining or producing assessable income are deductible unless they are of a capital nature. The nature of the expenditure is determined by the purpose for which it is incurred and the relationship it bears to the business operations.

The appeal was allowed, and the Commissioner was ordered to amend the assessment to allow the deduction.