Star City Pty Limited (ABN 25 060 510 410) v Commissioner of Taxation

Star City Pty Limited (ABN 25 060 510 410) appealed to the High Court of Australia against a decision of the Full Federal Court, which had affirmed a decision of a single judge of that court. The dispute concerned the deductibility of certain expenses incurred by Star City in relation to its casino operations, specifically payments made to the New South Wales Government under a licence agreement. The Commissioner of Taxation had disallowed these deductions.

The primary legal issue before the High Court was whether the payments made by Star City to the New South Wales Government, pursuant to the Casino Control Act 1992 (NSW) and the licence agreement, constituted a deductible outgoing under section 8-1 of the Income Tax Assessment Act 1997 (Cth). This required the Court to consider whether the payments were incurred in gaining or producing assessable income, or were necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, and whether they were of a capital, or of a capital, nature.

Gummow and Crennan JJ reasoned that the payments were not of a capital nature. They observed that the payments were recurring annual charges, calculated by reference to the casino's gross gaming revenue, and were a condition of maintaining the licence to operate the casino. The Court distinguished these payments from a once-off expenditure to acquire a capital asset or to establish a business. Instead, the payments were found to be part of the cost of operating the business on an ongoing basis, directly linked to the generation of assessable income. The Court applied the principles established in cases such as *Sun Newspapers Ltd v Federal Commissioner of Taxation* and *John Fairfax & Sons Ltd v Federal Commissioner of Taxation*, focusing on the character of the expenditure in the context of the taxpayer's business operations.

The High Court allowed Star City's appeal, setting aside the decision of the Full Federal Court and remitting the matter to the Federal Court for further consideration of the quantum of the deductible amount.