SWAYTE & SWAYTE

The parties to this proceeding were the applicants, Swayte & Swayte, and the respondent, the Commissioner of Taxation. The dispute concerned the deductibility of certain expenses incurred by the applicants, a firm of solicitors, in relation to a property development venture. The Commissioner had disallowed these deductions, leading to the applicants' appeal to the Federal Court of Australia.

The primary legal issue before Foster J was whether the expenses incurred by Swayte & Swayte in relation to the acquisition and development of a property, which was ultimately sold at a loss, constituted outgoings of a capital nature or were otherwise not deductible under section 8-1 of the *Income Tax Assessment Act 1997* (Cth). Specifically, the court had to determine if the expenditure was incurred in the course of carrying on a business or was of a capital nature, thereby rendering it non-deductible.

Foster J reasoned that the applicants' involvement in the property development was not merely an investment but an undertaking that formed part of their business activities as solicitors. His Honour applied the principles established in cases such as *Sun Newspapers Ltd v Federal Commissioner of Taxation* and *FC of T v Brown*, focusing on the nature of the expenditure and the intention of the taxpayer. The court found that the expenses were incurred in the course of carrying on a business, and therefore, were not of a capital nature. The intention was to derive profit from the development and sale of the property as part of their business operations.

Consequently, Foster J found that the expenses were deductible and ordered that the assessment be set aside and remitted to the Commissioner to be re-assessed on the basis that the expenses were deductible.