ARE THE OUTGOINGS OF A CAPITAL NATURE?
(a) The "Once and for all" Test
Has the expenditure been made once and for all Vallambrosa Rubber Co Ltd v Farmer
Where a payment is made "once and for all" then prima facie it is of a capital nature
The real test is between expenditure made to meet a continuous demand for expenditure as opposed to expenditure made once and for all
(b) The enduring benefit test
British Insulated and Helsby Cables Ltd v Atherton Viscount Cave
But when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributed to capital not revenue.
(c) The business entity test
the character of the advantage sought, and in this its lasting qualities may play a part
1. the manner in which it is to be used, relied upon or enjoyed and in this and under the former head recurrence may play a part and
2. the means adopted to obtain it; that is by providing a periodical reward or outlay to cover its use or enjoyment for periods commensurate with the payment or by making a final provision or payment so as to secure future use or enjoyment
Sun Newspapers Ltd v FCT
Cliff's International Inc v FCT Jacobs J outlined the following features that indicated expenditure was not of a capital nature when all were present
1. the asset, right or advantage was of a depreciating character and limited life
2. the obligation to make the payments in question continues throughout the life of the asset, right or advantage or the entitlement of the taxpayer to the asset, right or advantage
3. the amount of payments is recurrent
4. the amount of the payments is not fixed but is dependent on the use made of or profits derived from the asset, right or advantage
ARE THE OUTGOINGS OF A PRIVATE OR DOMESTIC NATURE?PRIVATE NATURE DOMESTIC NATURE
Losses or outgoings relating solely to the person incurring them as an individual member of society where that society is the society of human beingsE.g. travelling expenses incurred by a person to and from his place of employment / Losses or outgoings which relates solely to the house, home or family organisation of the person carrying on employment.
E.g. expenses paid by a person to a domestic to enable the worker to carry in his or her own employment
Home Stud y Has to be specifically deducted.
Self Education Expenses Deductible -$250
Legal Expenses There are several specific provisions dealing with the deductibility of legal expenses
HAVE THE OUTGOINGS BEEN INCURRED IN GAINING OR PRODUCING EXEMPT INCOME?Clearly if an amount is incurred to gain exempt income it is not deductible as the income is not taxable
IF YES TO ANY OF THESE UNABLE TO DE DEDUCTED UNDER SECTION 8-1(2)
IS THERE PRIMA FACIE A REPAIR?Repair given it's ordinary meaning [not defined in the Act]
Lurcott v Wakely & Wheeler Buckley LJ
Repair is restoration by renewal or replacement of subsidiary parts of a whole … the question of repair is in very case one of degree, and the test is whether the act to be done is one which in substance is the renewal or replacement of defective parts, or the renewal or replacement of substantially the whole
1. An item must be in need of restoration Case J47
2. The Repair must be for the purposes of restoring the item
The improvement of an item is capital therefore not deductible FCT v Western Suburbs Cinema
The alteration or improvements are not repair.
If an item of property is in need of repair at the time of acquisition by a taxpayer the cost of such repairs is not deductible to the taxpayer Law Shipping Co v IRC
HAS THE REPAIR BEEN INCURRED?YES NO [NO REPAIR]
HAS THE PREMISES, PLANT, MACHINERY ETC BEEN USED BY THE TAXPAYER TO INCOME PRODUCING PURPOSES?If the property repaired is only used partly for income producing purposes then a taxpayer can apportion the deduction on the basis of what is reasonable in the circumstances s25-10(2)
YES
ARE THE REPAIRS OF A CAPITAL NATURE?NO [DEDUCTIBLE UNDER 25-10] YES [NO