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Case N 2 (1991) 13 NZTC, 012 (TRA)

Facts of the case:-

1. Taxpayer was in business as a medical practitioner.
2. For the year ending 31 March 1986 the taxpayer claimed to deduct $23,000 education expense against his assessable income to study 12 months Master of Medical Science in General Practice at Leeds University in England. (accommodation $7k, travel $4k & tuition fee$11k)
3. The Commissioner disallowed that expenditure as a deduction under s104 (equivalent to DA1 ) , he stated it was of a capital nature and therefore was prohibited as a deduction under sec 106(1)(a) (equivalent to DA 2(1))


Argument by the commissioner:
1. The duration of course (12 months) is much longer than normal courses.
2. The expenditure was of a capital nature. The amount, duration and increase in income all point towards capital investment.


Court decision:
Bathgate DJ, mentioned expenditure incurred was of a revenue item thus fall into ordinary income concept:
1. The benefits obtained from the expenditure are neither of the nature of obtaining a foundation degree nor incurred in obtaining specialist qualification such as skin specialist.
2. The taxpayer income earning structure existed before, during and after the expenditure was incurred.
3. The expenditure was done to increase the existing income earning process, rather than to build capital structure on which that income earning process rested.
4. It is important to consider for what the payment was made, rather than why it was made. Money spent on the acquisition of an asset is regarded as capital but money spent on improving an asset in the nature of repairs and maintenance is usually regarded as of a revenue nature.