Question:
Tribunal accepts large software licence fee
Answer:
Recent changes are outlined below:
July 1, 2022
- Loss carry back for eligible companies extended to cover 2023 income year.
- Professional firm profits diverted to the professional's spouse or other associates to be reviewed under new Tax Office guidance.
- Corporate collective investment vehicle legislative regime introduced.
- Temporary full expensing of depreciating assets extended to include 2023 income year.
- Depreciable assets of a company joining a tax consolidation group have tax costs setting rules modified for assets depreciated under temporary full expensing rules.
December 9, 2021
- Reduced Pandemic leave disaster payment of $750 per week made available through to 30 June 2022.
August 5, 2021
- COVID-19 Disaster Payments are non-assessable non-exempt income in 2021 income year and later. Payments phasing out as vaccination rates increase.
July 1, 2021
- New Investment Engagement Service launched for businesses planning significant new investments in Australia.
- Tax Office small business independent review service made permanent for businesses with turnover < $10m, for income tax, GST, exercise, luxury car tax, wine equalisation tax and fuel tax credits. Requested before amended assessment issued.
- Small business income tax offset for individuals increased to provide a reduction of 16% for a tax payable up to $1,000.
- Self-managed superannuation funds can now have six members, increased from four members previously.
July 1, 2021
- Some COVID -19 state and territory business grants received by small and medium enterprises are non-assessable, non-exempt income for 2021 and 2022 income years.
- Certain state, territory and local government financial support for individuals and businesses suffering COVID-19 impacts made exempt where businesses have turnover less than $50 million and only in eligible programs.
March 31, 2021
- JobKeeper payments scheme ended.
October 5, 2020
- Boosting apprenticeship commencements subsidy (up to 50% of apprentice's wages) is assessable income.
June 4, 2020
- Homebuilder grant for new home or substantial renovation construction is not subject to income tax.
April 1, 2020
- COVID-19 cash flow boost payments are not subject to income tax
$305,000 of software license fees paid over two years will stand as an allowable deduction after the Tribunal overturned an assessment disallowing deductions for the fees.A Personal Services Income audit for the 2004 and 2005 income years resulted in amended assessments to knock out claims for license fees of $155,420 in 2004 and $150,273 for 2005.
The license fee was for six years and with a resident of South Africa who would not testify and whose business name was not registered by the relevant South African authorities.
The Tax Office thought the fee was inherently unbelievable and that the License Agreement contained discrepancies. The license fee was also paid by traveller’s cheques.
The Tribunal disagreed saying:
+ Although the License Agreement was badly drafted, it was not a sham;
+ Whether or not the South African principal was licensed to sell the software did not impact on the deductibility of the fee;
+ Although the fee may not have been commercially sensible in the short term, a longer term view may lead to a different conclusion;
+ Although payment by traveller’s cheque was unusual, it was not invalid;
+ An absence of records held by the relevant South African authorities did not count against the taxpayer;
+ User manuals and other documents required by the Tax Office were not relevant; and
+ The South African witnesses’ refusal to appear could be explained because they may have revealed breaches of the South African exchange control regulations.
The lesson here is to stand up to Tax Office bullying when you have a bona fide claim.
AAT Case [2012] AATA 20, WTB 2012/70
