In its recent decision in St George Ltd v. Commissioner of Taxation, the Federal Court of Australia held that payments made by the taxpayer pursuant to a subordinate debenture agreement were not deductible as expenses incurred because the outgoings were either capital or capital in nature. The Court characterized the payments as capital because the central purpose of the payments made by the bank were to maintain and support the bank's capital structure in accordance with prudential guidelines. This article compares the approach taken by the Court with the tax treatment of hybrid instruments adopted in the United Kingdom and the United States.