ZABER & ZABER (No.2)

The case of *Zaber & Zaber (No.2)* concerned a dispute between Zaber & Zaber and the Commissioner of Taxation. The core of the disagreement revolved around the deductibility of certain expenses claimed by Zaber & Zaber. The matter came before Justice Kemp of the Federal Court of Australia.

The primary legal issue before the Court was whether the expenses incurred by Zaber & Zaber constituted outgoings of a capital nature, and therefore were not deductible under section 8-1 of the *Income Tax Assessment Act 1997* (Cth), or if they were outgoings incurred in gaining or producing assessable income, making them deductible. The Court was required to consider the character of the expenditure in light of the taxpayer's business operations and the purpose for which the expenses were incurred.

Justice Kemp applied the established principles for distinguishing between capital and revenue outgoings, particularly focusing on the "profit-earning structure" test and the "profit-earning process" test. His Honour considered the nature of the expenditure, its duration, and its relationship to the taxpayer's business. The Court found that the expenses were not of a capital nature but rather were incurred in the ordinary course of the taxpayer's business operations, forming part of the profit-earning process.

Consequently, the Court found that the expenses were deductible and allowed the taxpayer's appeal.