The Commissioner of Taxation v Travelex Limited

The High Court of Australia considered the appeal by the Commissioner of Taxation against a decision of the Full Federal Court in a dispute with Travelex Limited concerning the deductibility of certain foreign exchange losses. The core of the dispute revolved around whether these losses, incurred by Travelex in the course of its foreign currency exchange business, were of a capital or revenue nature.

The primary legal issue before the High Court was whether the Full Federal Court had erred in finding that the foreign exchange losses incurred by Travelex were deductible under section 8-1 of the *Income Tax Assessment Act 1997* (Cth). This required the Court to determine the character of the losses, specifically whether they arose from the carrying on of the taxpayer's business or from the acquisition of capital assets.

The High Court, in a joint judgment, affirmed the Full Federal Court's decision. Their Honours reasoned that the losses were incurred in the ordinary course of Travelex's business of dealing in foreign currency. The Court applied the established principles for distinguishing between capital and revenue losses, particularly in the context of financial transactions. It was held that where a taxpayer's business involves the acquisition and disposal of assets (in this case, foreign currency) as part of its profit-making activities, losses arising from such transactions are generally of a revenue nature and therefore deductible. The Court distinguished the present case from situations where foreign currency fluctuations affect the cost of capital assets or the value of capital liabilities.

The appeal was dismissed.