Spassked Pty Ltd & Ors v Commissioner of Taxation

Spassked Pty Ltd and others (the taxpayers) appealed to the High Court of Australia against a decision of the Federal Court of Australia concerning the deductibility of certain expenses. The Commissioner of Taxation (the Commissioner) had disallowed these deductions, leading to the dispute.

The primary legal issue before the High Court was whether the expenses incurred by the taxpayers in acquiring shares in a company, which were subsequently transferred to the Commissioner as part of a settlement of a tax dispute, 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.

The High Court, in a joint judgment, held that the expenses were not deductible. Their Honours reasoned that the expenditure was not incurred in the process of gaining or producing assessable income, nor was it necessarily incurred in carrying on a business for that purpose. Instead, the expenditure was incurred in the context of a dispute with the Commissioner, and the acquisition of shares was a means to resolve that dispute, not an activity undertaken for the purpose of generating assessable income. The court applied the principles established in cases such as *Sun Newspapers Ltd v Federal Commissioner of Taxation* and *Federal Commissioner of Taxation v South Australian Battery Makers Pty Ltd*, emphasising the need for a direct and essential connection between the expenditure and the gaining or production of assessable income.

The appeal was dismissed, and the taxpayers were ordered to pay the Commissioner's costs.