Federal Commissioner of Taxation v Australia and New Zealand Savings Bank Ltd

Holding

A bank's payments under a stamp duty assumption agreement formed part of the cost of borrowing and were therefore deductible on revenue account; provisions of the Income Tax Assessment Act should be construed in light of the commercial substance of banking operations.

Facts

ANZ Savings Bank had assumed the stamp duty liability of customers on certain home loan transactions. It claimed the amounts as deductions for the year of income. The Commissioner argued the payments were capital or otherwise non-deductible outgoings.

Reasoning

The High Court held that the payments were a recurring cost of attracting and writing loans, intrinsic to the bank's ordinary income-earning operations. They were deductible under former section 51(1) because they were incurred in gaining or producing assessable income, were not capital, and had a sufficient connection with the bank's business.