Produce assessable income ronpibon tin w nevill co

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produce assessable income (Ronpibon Tin) W Nevill & Co Ltd v FCT (1937) Charles Moore & Co (WA) Pty Ltd v FCT (1956) Essential character For an outgoing to satisfy the positive limbs it must have the essential character of a ‘working’ or ‘business’ expense (Lunney) Courts traditionally characterize outgoings by reference to legal rights or advantages a taxpayer obtains from incurring the expenditure (Cecile Bros, Phillips) Courts are prepared to also take subjective criteria into account to characterize voluntary outgoings where the income produced is less than the amount of the outgoings (Ure, Fletcher) Necessarily incurred in carrying on a business If it is ‘dictated by the business ends to which it is directed’ (Snowden & Wilson) Necessarily: doesn’t mean ‘unavoidable’ or ‘essentially necessary’ It must be appropriate and adapted for the ends of the business carried on for the purpose of earning assessable income (Magna Alloys) Temporal connection Losses/outgoings that are ‘preliminary’ to the commencement of an income-producing or business activity are not incurred ‘in the course of’ such activity so are not deductible (Softwood Pulp, Griffin, Goodman Fielder Wattie) Provided the occasion of a loss or outgoing can be traced to business operations that were formerly carried on by the taxpayer for the purpose of gaining assessable income, loss or outgoing is usually deductible (Placer, Brown, Jones) Section 8-1 (negative limbs) However, you cannot deduct a loss or outgoing under this section to the extent that: o It is a loss or outgoing of capital, or of a capital nature o It is a loss or outgoing of a private or domestic nature o It is incurred in relation to gaining or producing your exempt income or non-assessable non- exempt income o A provision of this Act prevents you from deducting it 1 st negative limb- capital 3 broad tests that distinguish between revenue and capital expenditure o Once and for all test Expenditure is incurred ‘once and for all’ is usually capital in nature; expenditure incurred ‘regularly’ is usually revenue in nature (Vallambrosa Rubber) o Enduring benefit test Expenditure incurred to bring into existence an asset of a ‘lasting nature’ is usually capital in nature (British Insulated & Helsby Cables) o Business entity test Expenditure that relates to the taxpayer’s profit yielding structure is usually capital in nature 22
establishing, enlarging, extending or protecting the business) Expenditure that relates to ‘the process of operating it’ is usually revenue in nature (Sun Newspapers) Other negative limbs 2 nd : losses or outgoings of a private or domestic nature o Childminding 3 rd : losses or outgoings incurred in gaining exempt income or non-assessable non-exempt income o Doesn’t satisfy the positive limbs of s8-1 (connection between expenses and prod of AI) 4 th : losses or outgoings that are specifically nondeductible under another provision Clothing expenses Generally, not deductible on ordinary articles of apparel, notwithstanding that such expenditure is

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