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Word Count: 654
The facts of this case were that the taxpayer and three others in partnership entered a complex scheme which involved the partnership and annuity and loan arrangements The scheme was financed through a series of round robin cheques and promised substantial deductions in the first five years of the 15-year plan A number of documents were exchanged but no cash payments were made This was calculated to return neutral cash flows with high tax deductions initially and high assessable income especially in the last five years A feature of the scheme was that there was an opportunity to terminate it in the last five years In the relevant year the partnership derived assessable income of 170000 and claimed deductions of 360000 The issue before the court was whether the taxpayers were entitled to a deduction for interest A lot of matters were argued before the case reached the High Court but before the Full Court the Commissioners contention was that the interest deduction should apportioned and disallowed under s 511 to the extent that it exceeded the partnership income Their Honours indicated that if a taxpayers costs in deriving income were less than the actual income the deductions would be allowable However if the costs exceed the income derived the taxpayers purpose for making the expenditure may be relevant in characterizing and apportioning the expenditure for the purpose of the general deduction provision This may include the taxpayers purpose for incurring the expenditure Manson CJ Brennan Deane Dawson Toohey Gaudron and McHugh JJ said at ATR 622-3 The position may however well be different in the case where no relevant assessable income can be identified or where the relevant assessable income is less than the amount of the outgoingthe disproportion between outgoing and income the whole outgoing is properly to be characterized as genuinely and not colourably incurred in gaining or producing assessable income the entire outgoing will fall within the first limb
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