However, this section also puts a discretionary element into the ATO's or the Judge's determination because the expenditure has to be necessary to the actual capital gain, which brings into question the validity of the expenses that are preparatory in nature or for other purposes rather than the actual construction. The key point that this judgment made is that the determination of this and subsequent cases is in reference to all circumstances, which includes an examination of the taxpayer's purpose or intention in incurring the expenditure. If it is necessary to apportion a loss or outgoing, the appropriate apportionment will depend on the facts of each case. The method taken must be fair and reasonable as per the case of Ronipibon Tin NL v Tongkah Compound NL v FC of T  (78 CLR 47). The expenditure to be deductible if it necessarily incurred for the particular income producing purpose in question, which can include limiting to an the income for just a particular year as per the case of Fletcher v Federal Commissioner of Taxation  (173 CLR 1). In this case of the vacant land that was leased in the aforementioned ATO decision the owner did not purchase the land for leasing, rather private purposes so in the original sale there was no allowable deduction. Now the owner is using the land to bring in income, therefore the owner is allowed a deduction in the tax year that is expended up to the amount of the income earned but not exceeding this.
In the case of the swimming pool that BLW have built on the vacant land that they own they are sure to be allowed certain expenditures on the land as allowable deductions. The first thing to identify is that the improvement and expenditure outlaid is not for private purposes, because if it were the costs would not be deductible. As the purpose of the expenditure is to build a swimming pool for the community, which will cost to enter then it is classed as a business venture and therefore valid deductions are possible from the income of $60,000 from Mulga Council. It needs to be noted that the whole profit is counted as no GST was paid because in this dealing of the monies going to BLW from the council there was a tax exemption. In relation to the $660, 000 to the builder of the pool one has to consider whether this is deductible or as this is the contractual duty that BLW owed to Mulga to get the $600,000 then it is not a deductible cost because it is the work that needs to be completed to get the $60,000. Therefore under Section 8-1 of the ITAA it is not a deductible costs; however for the other costs that are mentioned they may be deductible. Also in respect to deduction and depreciation under CGT and cost bases this property fulfills the requirement, which is that the land is improved to enhance the value of the