SAFIR & SAFIR(No.2)

Safir & Safir (No 2) concerned a dispute between the applicants, Safir and Safir, and the respondent, the Commissioner of Taxation. The applicants sought to challenge the Commissioner's assessment of their income tax liability for the 2014 and 2015 income years. The core of the dispute revolved around the Commissioner's disallowance of certain deductions claimed by the applicants.

The primary legal issue before Newbrun J was whether the expenditure incurred by the applicants was deductible under section 8-1 of the *Income Tax Assessment Act 1997* (Cth). This required the court to determine if the expenditure was incurred in gaining or producing assessable income, or if it was necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. The Commissioner contended that the expenditure was of a capital nature or was otherwise not deductible.

Newbrun J applied the well-established principles for determining the deductibility of expenses, particularly the distinction between capital and revenue outgoings. His Honour considered the nature of the expenditure, its relationship to the applicants' business activities, and the purpose for which it was incurred. After analysing the evidence, the court found that the expenditure in question was not of a capital nature and was properly incurred in the course of carrying on the applicants' business for the purpose of gaining or producing assessable income. Consequently, the deductions were allowed.