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The Federal Court (Gordon J) has held that the taxpayer (Visy Industries USA Pty Ltd) was entitled to a deduction under s 8-1 ITAA 1997 for a one-off non-refundable amount of USD17,801,325 (the Indemnity Fee) that it paid to Pratt Investments Inc, in consideration of Pratt Investments Inc undertaking to indemnify the taxpayer against its potential loss under a Forward Exchange Contract.

Gordon J considered that the Indemnity Fee was deductible under s 8-1 of ITAA 1997. The taxpayer incurred the fee in gaining or producing its assessable income or was necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. Further, the Indemnity Fee was not a loss or outgoing of capital or of a capital nature. Gordon J also rejected the Commissioner’s contention that the Forward Exchange Contract was not a commercial transaction or was not an adventure in the nature of trade.

Visy Industries USA Pty Ltd v FCT [2011] FCA 1065 (Federal Court, Gordon J, 14 September 2011).


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