Sandini Pty Ltd atf the Karratha Rigging Unit Trust & Ors v Ellison & Ors; v Commissioner of Taxation of the Commonwealth of Australia & Ors

The Full Federal Court heard appeals in *Sandini Pty Ltd atf the Karratha Rigging Unit Trust & Ors v Ellison & Ors* and *Sandini Pty Ltd atf the Karratha Rigging Unit Trust & Ors v Commissioner of Taxation of the Commonwealth of Australia & Ors*. The primary dispute concerned the deductibility of certain expenses incurred by Sandini Pty Ltd (Sandini) and the Karratha Rigging Unit Trust (the Trust) in relation to a scheme involving the acquisition and disposal of shares in a company called Austal. The Commissioner of Taxation (the Commissioner) disallowed these deductions, leading to the litigation.

The central legal issues before the Full Federal Court were whether the expenses incurred by Sandini and the Trust were deductible under section 8-1 of the *Income Tax Assessment Act 1997* (Cth) as outgoings incurred in gaining or producing assessable income or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. Specifically, the court had to determine if the expenses were of a capital or of a revenue nature, and whether they were incurred for the purpose of gaining or producing assessable income.

The court applied established principles regarding the deductibility of expenses, particularly the distinction between capital and revenue outgoings. It considered the nature of the expenditure, the purpose for which it was incurred, and the relationship between the expenditure and the business operations of the taxpayers. The court found that the expenses were not deductible as they were capital in nature, relating to the establishment or restructuring of the taxpayers' business rather than being incurred in the course of carrying on that business for the purpose of producing income. The court affirmed the decision of the primary judge in disallowing the deductions.