Revesby Credit Union Co-Operative Ltd v Federal Commissioner of Taxation

Revesby Credit Union Co-Operative Ltd (the taxpayer) appealed to the High Court of Australia against a decision of the Federal Commissioner of Taxation (the Commissioner) concerning the deductibility of certain expenses. The dispute centred on whether payments made by the taxpayer to its members, described as "dividends," were allowable deductions for income tax purposes.

The primary legal issue before the High Court was whether the payments made by the taxpayer to its members constituted a "loss or outgoings necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income" under section 26(a) of the *Income Tax Assessment Act 1936* (Cth) (now broadly equivalent to s 8-1 of the *Income Tax Assessment Act 1997* (Cth)). This required the Court to determine the character of these payments – whether they were truly dividends, representing a distribution of profits, or if they were expenses incurred in the course of the taxpayer's business operations.

McTiernan J considered the nature of a credit union and its relationship with its members. His Honour reasoned that the payments, though termed "dividends," were in substance a return to members for the use of their capital, which was essential for the credit union's business of lending money. These payments were not a distribution of profits in the ordinary sense but rather a cost of obtaining the necessary funds to operate. Therefore, they were necessarily incurred in carrying on the business for the purpose of gaining or producing assessable income and were deductible.

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