Resource Capital Fund III LP v Commissioner of Taxation

Resource Capital Fund III LP (RC) and the Commissioner of Taxation (Commissioner) were parties to a dispute concerning the deductibility of certain interest expenses incurred by RC. The matter came before the Full Federal Court of Australia.

The central legal issue before the Full Federal Court was whether the interest expenses incurred by RC, a limited partnership, were deductible under section 8-1 of the *Income Tax Assessment Act 1997* (Cth). This involved determining whether the expenditure was incurred in gaining or producing assessable income or was necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, and whether it was of a capital, or of a capital, nature.

The Full Federal Court held that the interest expenses were not deductible. Their Honours Crennan and Keane JJ reasoned that the expenditure was of a capital nature. They applied the established legal principle that expenditure incurred in acquiring or establishing a business structure or an enduring asset is generally of a capital nature. In this instance, the interest was incurred in relation to the acquisition of units in a company that held the underlying mining assets, which was considered to be an acquisition of a capital asset. The court distinguished this from expenditure incurred in the day-to-day operations of a business.

The appeal was dismissed.