ZARINS & MYLNE

In *Zarins & Mylne*, the parties were the applicants, Zarins and Mylne, and the respondent, the Commissioner of Taxation. The dispute concerned the Commissioner's assessment of income tax against the applicants for the 2014 income year, specifically relating to the deductibility of certain expenses. The matter came before Macmillan J of the Federal Court of Australia.

The primary legal issue before the court was whether the expenses incurred by the applicants, which they sought to deduct under section 8-1 of the *Income Tax Assessment Act 1997* (Cth), were properly characterised as outgoings incurred in gaining or producing assessable income, or alternatively, whether they were outgoings of capital or of a capital, private or domestic nature. The court was required to determine the application of the "positive limb" and "negative limb" of section 8-1 to the facts of the case.

Macmillan J reasoned that the deductibility of an expense under section 8-1 hinges on its characterisation. The court considered the nature of the expenditure and its connection to the assessable income. Applying established principles, his Honour found that the expenses in question were not sufficiently connected to the gaining or producing of the applicants' assessable income. Instead, the expenditure was found to be of a capital nature, or alternatively, private in nature, and therefore not deductible under section 8-1. The court affirmed the Commissioner's disallowance of the deductions.