TROTTER & PAYNE

The parties to this proceeding were Trotter & Payne (the applicant) and the Commissioner of Taxation (the respondent). The applicant sought judicial review of the Commissioner's decision to disallow its objection to an assessment of income tax for the 2017 income year. The matter came before Macmillan J of the Federal Court of Australia.

The central legal issue before the court was whether the applicant, a company engaged in the business of funeral directing, was entitled to claim a deduction under section 8-1 of the *Income Tax Assessment Act 1997* (Cth) for payments made to a trustee of a superannuation fund. These payments were made pursuant to a deed of trust, which stipulated that the trustee was to hold the funds for the benefit of employees of the applicant, including its directors. The Commissioner had disallowed the deduction on the grounds that the payments were not incurred in gaining or producing assessable income, nor were they necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.

Macmillan J considered the nature of the payments and the purpose for which they were made. His Honour applied the principles established in cases such as *Ronpibip Tin Dredging Co Ltd v Federal Commissioner of Taxation* and *Charles Moore & Co (W.A.) Pty Ltd v Federal Commissioner of Taxation*, which establish that for a deduction to be allowable under section 8-1, the expenditure must have a sufficient connection to the gaining or production of assessable income. His Honour found that the payments were made in accordance with the applicant's obligations and for the purpose of retaining and incentivising its employees, including its directors, thereby contributing to the efficient operation of the business and the consequent production of assessable income. The payments were therefore considered to be properly deductible.

The court ordered that the Commissioner's decision be set aside and remitted to the Commissioner to be dealt with according to law, with the Commissioner to pay the applicant's costs.