Edited version of private ruling

Authorisation Number: 1011784847866

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Deduction for capital expenditure

Question

Is the Relevant Expenditure incurred by the taxpayer deductible under section 40-880 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following periods:

Income year ended 31 December 2009

Income year ended 31 December 2010

Income year ended 31 December 2011

Income year ended 31 December 2012

Income year ended 31 December 2013

The scheme commenced on:

Income year ended 31 December 2009

Relevant Facts

The taxpayer is an Australian resident company and the trustee of Trust A and Trust B. It was a wholly-owned Australian resident subsidiary of the Manager Group (in its own capacity).

Trust A, Trust B and Company A were part of a stapled security that owned and operated certain assets. Company A is a non-resident company.

External management arrangements

Since their establishment, Trust A and Trust B was externally managed by the taxpayer, which provided 'responsible entity' (RE) and advisory services to Trust A, Trust B and other entities.

To enable the taxpayer to provide these management services, the Manager Company, a related entity in the Manager Group, provided certain services and resources to the taxpayer under the Agreement.

The Agreement had no set term, but a clause of the Agreement enabled the parties to terminate on such terms as the parties agree.

The Transaction

Trust B announced a proposal to restructure its management structure (the Transaction). The Transaction involved the acquisition of the taxpayer by the Trust B tax consolidated group and termination of the Agreement.

The taxpayer and other relevant entities entered into a number of agreements collectively referred to as the Transaction Documents.

Under the Transaction Documents, an amount would be payable by the taxpayer to the Manager Company immediately after the taxpayer was acquired by the Trust B tax consolidated group (Relevant Expenditure).

The Relevant Expenditure was consideration for:

· the Manager Group agreeing to release the taxpayer from its obligation to pay fees under the Agreement; and

· the Manager Group's role in structuring, proposing and facilitating the Transaction, and its cooperation and assistance in implementing the Transaction.

The Relevant Expenditure was calculated by reference to an independent valuation.

The Relevant Expenditure was not consideration for the actual provision of any assets, services or resources; nor did it constitute consideration for the acquisition of the taxpayer by the Trust B tax consolidated group. The provision of each of the assets, services and resources (except the licence of some intellectual property), and the acquisition of the taxpayer were subject to separate arrangements which were not part of the Transaction Documents.

The Trust B tax consolidated group acquired all of the shares of the taxpayer (in its own capacity).

The Relevant Expenditure was incurred immediately after the completion of the transfer of the shares of the taxpayer (in its own capacity) to the Trust B tax consolidated group.

The taxpayer paid the Relevant Expenditure to the Manager Company.

The Agreement was terminated and the Transaction completed. The taxpayer continued to be RE of both Trust A and Trust B.

Taxpayer's business

After the Transaction, Trust B was the head company of a tax consolidated group, which owned certain assets in Australia and internationally. The taxpayer operated its business through the use of those assets.

After implementation of the Transaction, the taxpayer became a subsidiary member of the Trust B tax consolidated group and continues to provide RE and advisory services to entities within the tax consolidated group.

Trust B carries on business entirely for a taxable purpose and does not currently derive, nor does it anticipate to that it will derive in future years, any exempt income or non-assessable non-exempt income.

Relevant legislative provisions

Income Tax Assessment Act 1997 (Cth) Section 40-880

Income Tax Assessment Act 1997 (Cth) Subsection 40-880(2)

Income Tax Assessment Act 1997 (Cth) Paragraph 40-880(2)(a)

Income Tax Assessment Act 1997 (Cth) Subsection 40-880(3)

Income Tax Assessment Act 1997 (Cth) Subsection 40-880(4)

Income Tax Assessment Act 1997 (Cth) Subsection 40-880(5)

Income Tax Assessment Act 1997 (Cth) Paragraph 40-880(5)(d)

Income Tax Assessment Act 1997 (Cth) Paragraph 40-880(5)(f)

Income Tax Assessment Act 1997 (Cth) Section 108-5

Income Tax Assessment Act 1997 (Cth) Section 110-25

Income Tax Assessment Act 1997 (Cth) Section 701-1

Income Tax Assessment Act 1997 (Cth) Subsection 701-1(1)

Income Tax Assessment Act 1997 (Cth) Subsection 995-1(1)

Reasons for decision

Section 40-880 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) provides a deduction over five years for capital expenditure incurred in relation to a business, to the extent that none of the limitations or exclusions apply.

Deduction

As stated above, section 40-880 of the ITAA 1997 allows a taxpayer to deduct certain business capital expenditure in equal proportions over 5 years. In order to deduct this expenditure, the taxpayer must have incurred the expenditure prior to 1 July 2005 in relation to their business, which is, was, or is proposed to be carried on for a taxable purpose.

The eligibility for this deduction is determined once, at the time the expenditure is incurred. Entitlement is established under subsection 40-880(2) of the ITAA 1997, subject to the limitations in subsections 40-880(3) and (4) and the exceptions in subsections 40-880(5) to (9) of the ITAA 1997.

This case does not involve the Relevant Expenditure being incurred in relation to a business that used to, or is proposed to be carried on. As paragraph 40-880(2)(d) of the ITAA 1997 also has no application on the facts of the case, the expenditure falls for consideration under paragraph 40-880(2)(a) of the ITAA 1997.

Entitlement

Capital Expenditure

The expression 'capital expenditure' is not defined in the ITAA 1997, and therefore must be established in accordance with the principles of case law with a consideration of the individual facts on a case-by-case basis.

In Sun Newspapers Ltd v FC of T (1938) 61 CLR 337 (Sun Newspapers), Dixon J identified the following three factors to consider in the determination of whether the character of an outlay is revenue or capital:

· the character of the advantage sought, and in this its lasting qualities may play a part;

· the manner in which it is to be used, relied upon or enjoyed, and in this and under the former head recurrence may play its part; and

· the means adopted to obtain it; that is, by providing a periodical reward or outlay to cover its use or enjoyment for periods commensurate with the payment or by making a final provision or payment so as to secure future use or enjoyment.

When considering what factors indicate whether expenditure is of a capital nature, in Sun Newspapers Dixon J considered that 'the idea of recurrence and the idea of endurance or continuance over a duration of time both depend on degree and comparison'.

Additionally, Latham CJ in Sun Newspapers determines that an enduring benefit does not require that the taxpayer obtain an actual asset, but a benefit which endures, in the way that fixed capital endures.

The following indicators, whilst not exhaustive or ultimately definitive of the relevant matters to be considered in each case, were identified by Dixon J in Sun Newspapers as suggesting that an expense is capital in nature:

· The expenditure is related to the business structure itself. This includes the establishment, replacement or enlargement of the profit yielding structure of business rather than the money earning process.

· The nature of the asset has lasting and enduring benefit to the business.

· The payment is made 'once and for all' being a single final provision for the future use or enjoyment of the asset or advantage rather than on a regular basis, such as weekly, monthly or yearly or for a specific period.

Based on the above, the Relevant Expenditure is of a capital nature, for the following reasons which individually are not determinative, but are indicative of the Relevant Expenditure being capital in nature when considered together:

The Relevant Expenditure was a perpetual and not a periodic payment.

The intent behind the payment of the Relevant Expenditure was to affect a permanent or enduring advantage, for the benefit of the business as a whole.

The Relevant Expenditure related to the profit-yielding structure, not an operational aspect of the business itself.

Accordingly, the Relevant Expenditure is capital in nature.

Incurred

As there is no statutory definition of the term 'incurred', it is necessary to consider the principles established by case law. In Taxation Ruling TR 2010/D7 (TR 2010/D7) the Commissioner states that the principles espoused by the courts regarding the meaning of the word 'incurred' in section 8-1 of the ITAA 1997 also apply to section 40-880 of the ITAA 1997.

Essentially, a taxpayer incurs expenditure at the time they owe a present money debt that they cannot avoid paying. A taxpayer need not actually have paid any money, however the taxpayer must be 'completely subjected' to the obligation.

It is insufficient if the liability is merely contingent or no more than pending, threatened or expected, no matter how certain it is that the expenditure will be incurred in the future. A taxpayer may have a presently existing liability even if the amount cannot be precisely ascertained, as long as it can be reasonably estimated.

As the Relevant Expenditure was actually paid by the taxpayer (as a subsidiary member of the Trust B tax consolidated group) to the Manager Company it was 'incurred' by Trust B (pursuant to the 'single entity rule' in subsection 701-1(1) of the ITAA 1997).

Business

Section 40-880 of the ITAA 1997 only permits the deduction of a capital expenditure if it has 'the essential character of business expenditure'. This is confirmed in paragraph 2.25 of the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 which states that 'the provision is concerned with expenditure that has the character of a business expense because it is relevantly related to the business'.

Whether the capital expenditure is a business expense requires consideration of the particular facts of the case in order to determine if a business is being carried on and what the expense is for.

'Business' is defined in subsection 995-1(1) of the ITAA 1997 to include any profession, trade, employment, vocation or calling, but does not include occupation as an employee.

The business of Trust B encompasses the RE/advisory activities of the taxpayer (pursuant to the 'single entity rule' under subsection 701-1(1) of the ITAA 1997) and its holding interests in the assets held by the Trust B tax consolidated group. Accordingly, Trust B carries on a business for the purposes of section 40-880 of the ITAA 1997.

Capital expenditure in relation to your business

TR 2010/D7 states at paragraph 15 that 'for capital expenditure to be "in relation to" a business there must be a sufficient and relevant connection between the expenditure and the business'. Additionally, at paragraph 16, it is recognised that the connection between the expense and the business must 'objectively support the conclusion that the capital expenditure is a business expense of the particular business', which is a business carried on by the taxpayer, formerly carried on by the taxpayer or another entity or proposed to be carried on by them or another entity.

As 'in relation to' is not defined, it takes on its ordinary meaning.

In TR 2010/D7 the Commissioner considers that the legislative context of section 40-880 of the ITAA 1997 indicates that the closeness of the association or connection must objectively support the conclusion that the expenditure is a business expense of the particular business, and must be a genuine business expense of a particular business.

In considering the phrase 'in relation to' contained within subsection 40-880(2) of the ITAA 1997, paragraph 2.25 of the Explanatory Memorandum to Tax Laws Amendment (2006 Measures No. 1) Bill 2006 states:

The provision is concerned with expenditure that has the character of a business expense because it is relevantly related to the business. The concept used to establish this character or requisite relationship between the expenditure incurred by the taxpayer and the business carried on (current, past or prospective) is 'in relation to'. The connector 'in relation to' allows the appropriate latitude to enable the deductibility of qualifying capital expenditure incurred before the business commences or after it has ceased.

The phrase 'in relation to' was considered by the High Court in PMT Partners Pty Ltd (In Liquidation) v. Australian National Parks & Wildlife Service (1995) 184 CLR 301. Brennan CJ, Gaudron and McHugh JJ observed, in considering the application of the Commercial Arbitration Act 1985 (NT), at 313:

Inevitably, the closeness of the relation required by the expression 'in or in relation to' in s 48 of the Act, indeed, in any instrument - must be ascertained by reference to the nature and purpose of the provision in question and the context in which it appears.

In that case, Toohey and Gummow JJ also observed:

It is apparent that the words 'in or in relation to' are particularly wide. ... Cases concerning the interpretation of this phrase in other statutory contexts are of limited assistance. However, the cases do show that the words are prima facie broad and designed to catch things which have sufficient nexus to the subject. The question of sufficiency of nexus is, of course, dependent on the statutory context. ...

The connection which is required by the phrase 'in relation to' is a question of degree. There must be some 'association' which is 'relevant' or 'appropriate'. The question of the relevance or appropriateness of the connection is a question which cannot be divorced from the particular statutory context.

In First Provincial Building Society Limited v. Federal Commissioner of Taxation (1995) 56 FCR 320; 95 ATC 4145; (1995) 30 ATR 207, Hill J considered the phrase 'in relation to' within the context of paragraph 26(g) of the ITAA 1936. He considered the words 'in relation to' in that context included a relationship that may either be direct or indirect, provided that the relationship consisted of a real connection, but that a merely remote relationship is insufficient.

It is therefore necessary to consider the legislative context of subsection 40-880(2) of the ITAA 1997 in order to determine whether there is a sufficient and relevant connection between the expenditure incurred and the taxpayer's business. In discussing the types of business capital expenditure to which subsection 40-880(2) of the ITAA 1997 applies, the Explanatory Memorandum to Tax Laws Amendment (2006 Measures No. 1) Bill 2006 states:

2.19 Expenditure on the structure by which an entity carries on (or used to or proposes to carry on) their business and on the profit yielding structure of the business would ordinarily be expected to be of a capital nature. Capital expenditure can also relate to a business's trading operations or the entity that will carry on the business.

2.20 The structure covers the legal entity (such as a company) or the legal relationship (such as a partnership or trust) that is the entity that carries on the business for a taxable purpose and that holds the business assets.

This indicates that capital expenditure that is incurred on the structure by which an entity carries on their business is capable of being described as capital expenditure incurred 'in relation to' that business for the purposes of subsection 40-880(2) of the ITAA 1997. Whether such capital expenditure is incurred 'in relation to' the particular business will depend on whether there is a sufficient and relevant connection between the incurring of the expenditure and that business on the facts of the particular case.

Expenditure to convert the taxpayer's business structure to a different structure would prima facie demonstrate a sufficient and relevant connection between the incurrence of that expenditure and the taxpayer's business. However, it is necessary to establish the connection by reference to the facts of the individual case.

Paragraph 2.48 of the Explanatory Memorandum to Tax Laws Amendment (2006 Measures No. 1) Bill 2006 states that '[t]he business to which the expenditure relates is that most relevant to the expenditure'. This illustrates that when there is such a connection between the incurring of the expenditure and more than one business, the expenditure is treated for the purposes of subsection 40-880(2) of the ITAA 1997 as incurred in relation to the business that is most relevant to the expenditure.

Paragraph 2.48 of the Explanatory Memorandum to Tax Laws Amendment (2006 Measures No. 1) Bill 2006 also states that '[t]his could be either the activity of the taxpayer entity or various separate activities carried on by the taxpayer'. This indicates that various separate activities could amount to the 'business' of the taxpayer.

In the present case, the Relevant Expenditure was primarily incurred to obtain the Manager Group's co-operation to enable Trust B to internalise its management structure. As such, the expenditure relates to the restructure of the management of Trust B's entire business, including the RE/advisory services of the taxpayer.

It is therefore considered that the Relevant Expenditure is business related capital expenditure.

Limitations and exceptions

Taxable purpose

Pursuant to paragraph 40-880(1)(c) of the ITAA 1997 and subsections 40-880(3) and (4) of the ITAA 1997, a deduction under the blackhole provisions is limited to the extent that the business in relation to which the taxpayer incurs the expenditure is, was or is proposed to be carried on for a taxable purpose.

At paragraphs 127 and 128, TR 2010/D7 states that '[i]f the business is carried on partly to derive exempt income or non-assessable non-exempt income or if part of the business is not carried on for the purpose of gaining or producing assessable income then a proportionate part of the capital expenditure is excluded. Likewise, if the business is carried on wholly to derive exempt income or non-assessable non-exempt income then a deduction under section 40-880 is not available'.

The taxable purpose of the business is tested at the time the expenditure is incurred, taking into account all known and predictable facts about the taxable purpose of the business in future years.

The activities of Trust B do not currently generate any exempt or non-assessable non-exempt income, and Trust B had not derived any such income from the time that the expenditure was incurred.

Additionally, while Trust B may derive a relatively small amount of non-assessable non-exempt income at some point in the future, this is not certain and therefore not a 'known or predictable fact'.

On this basis Trust B's business is carried on wholly for a taxable purpose, and subsection 40-880(4) of the ITAA 1997 does not apply to limit Trust B's deduction in respect of the Relevant Expenditure.

Exceptions

Subsections 40-880(5) to (9) of ITAA 1997 set out further limitations and exceptions to the amount that can be deducted under section 40-880 of the ITAA 1997.

On the facts of the present case, the following exclusions under section 40-880 of the ITAA 1997 are relevant to the taxpayer's transaction:

· paragraph 40-880(5)(d) - expenditure in relation to a lease or other legal or equitable right; and

· paragraph 40-880(5)(f) - expenditure that could, apart from this section, be taken into account in working out the amount of a capital gain or capital loss from a CGT event.

Expenditure in relation to a lease or other legal or equitable right

Paragraph 40-880(5)(d) of the ITAA 1997 operates to prevent the deduction of any amount under section 40-880 of the ITAA 1997 that you incur to the extent that 'it is in relation to a lease or other legal or equitable right'.

While 'lease or other legal or equitable right' is not defined in the ITAA 1997, paragraph 2.68 of the Explanatory Memorandum to Tax Laws Amendment (2006 Measures No. 1) Bill 2006 refers to the fact that the exclusion replicates the repealed section 40-880 which was introduced in the context of the Government's review of the treatment of expenditure incurred on leases or other legal or equitable rights. At the time of the inclusion of section 40-880 in the ITAA 1997 in 2002, paragraph 3.67 of the Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 5) 2002 stated:

The Government is reviewing the treatment of expenditure incurred in relation to leases or other legal or equitable rights as part of the consideration of the recommendations of the Review of Business Taxation. The appropriate income tax treatment of capital expenditure incurred in relation to these leases and rights will be determined as part of that review. Consequently, capital expenditure on leases or other legal or equitable rights will be excluded from deduction under section 40-880.

It is necessary to therefore consider the recommendations of the Review of Business Taxation to determine the intended scope of 'lease or other legal or equitable right'. The proposed review of the taxation of 'leases and rights' (as mentioned above) was discussed at pages 213-280 of the Review of Business Taxation, A Platform for Consultation, Discussion Paper 2 Volume I, February 1999 (Discussion Paper). Specifically, at paragraph 8.1 on page 217, the following is stated:

What is a lease or right?

Leases and rights are essentially arrangements for transferring some or all of the benefits of ownership of an asset from the owner to the recipient of the lease or right. The following kinds of rights contracts are covered by the discussion:

· leasing and similar contracts which provide rights over physical assets, for example, leases of equipment

· contracts giving rights over intangible assets, such as spectrum licences and rights in films, patents, copyright, and industrial designs

· indefeasible rights of use over assets, such as telecommunication cables

· profits á prendre, that is, a right to take a product such as standing timber from another person's land

· contracts for services

· restrictive covenants; and

· rights to receivables arising from 'rights' contracts, for example, lease receivables.

There is also a reference at paragraph 9.4 of that document that 'service contracts that are, in substance, broadly similar to leases' were part of the review.

Section 10 of the Review of Business Taxation, A Tax System Redesigned, Report, July 1999, made recommendations in relation to the taxation of leases and rights. While that report did not explain what was encompassed by the expression 'leases and rights', it can reasonably be inferred that it was referring to the sorts of 'leases and rights' outlined in the Review of Business Taxation, A Platform for Consultation, Discussion Paper 2 Volume 1, February 1999, referred to above.

TR 2010/D7 provides further guidance as to what forms of legal or other equitable rights could fall under the scope of paragraph 40-880(5)(d) of the ITAA 1997.

At paragraph 197, TR 2010/D7 emphasises that the main focus of the Review of Business Taxation with respect to leases and rights was the lack of consistent framework for taxing income from, and recognising expenditure associated with, leases over non-easting assets and other rights. Additionally, there was a focus on the anomalies in the tax treatment of payments for the acquisition of rights, receipts from the use of those rights and losses from the grant of the right.

The rights that the Discussion Paper dealt with were divided between three broad categories:

· rights granted over the use of physical and intangible business assets;

· rights under financial transactions; and

· rights that are trading stock, such as software produced or developed for sale.

The following rights potentially fall under the scope of paragraph 40-880(5)(d) of the ITAA 1997:

(a) the Manager Company's right to provide resources and receive a fee for these resources under the Agreement;

(b) the taxpayer's right under the Transaction Documents to receive The Manager Company's assistance and cooperation in relation to the Transaction; and

(c) the taxpayer's right under the Transaction Documents to use licensed materials.

Based on the analysis above, the rights identified at (a) and (b) above do not fall under the scope of paragraph 40-880(5)(d) of the ITAA 1997 as they are not rights that were considered by the Review of Business Taxation.

Paragraph 203 of TR 2010/D7 clarifies that the object of section 40-880 of the ITAA 1997 and its legislative context indicate that paragraph 40-880(5)(d) of the ITAA 1997 does not exclude all expenditures incurred when a contract is entered into. If this were not the case, only voluntary expenditure would be deductible under section 40-880 of the ITAA 1997 and this clearly was not intended by Parliament.

In respect of the taxpayer's right to use the licensed material, even though there was no separate consideration paid for the licence, nor any separate agreements executed, the licence that was granted was perpetual, royalty-free and non-exclusive. Accordingly, no part of the Relevant Expenditure was for the licence.

On the facts, there are no leases or other legal or equitable rights of the types considered by the Review of Business Taxation (in the context of its review of the taxation of leases and rights) in relation to which the expenditure referred to in the facts could be said to have been incurred.

Based on this information, paragraph 40-880(5)(d) of the ITAA 1997 does not operate to limit the deductibility of the Relevant Expenditure.

Expenditure that could be taken into account in working out a capital gain or loss

Paragraph 40-880(5)(f) of ITAA 1997 provides that you cannot deduct anything under section 40-880 of the ITAA 1997 for an amount of expenditure you incur to the extent that 'it could, apart from this section, be taken into account in working out the amount of a capital gain or capital loss from a CGT event'.

Capital expenditure which reduces capital proceeds from a CGT event, or forms part of the cost base (or reduced cost base) of a CGT asset, could be taken into account in working out the amount of a capital gain or capital loss from a CGT event for the purposes of paragraph 40-880(5)(f) of the ITAA 1997.

Accordingly, it is necessary to determine whether a CGT asset exists to which the Relevant Expenditure could be taken into account in calculating a capital gain or loss from a CGT event, whether any CGT event could occur, and whether the expenditure relates to the capital proceeds or cost base from that CGT asset.

Section 108-5 of the ITAA 1997 states that a CGT asset is:

(a) any kind of property; or

(b) a legal or equitable right that is not property.

On the facts of the present case, the potential CGT assets that we considered in determining whether paragraph 40-880(5)(f) of the ITAA 1997 applies were:

· the Manager Company's contractual rights under the Resources Agreement;

· the taxpayer's contractual right to receive the Manager Group's assistance and cooperation in relation to the Transaction;

· the taxpayer's shares; and

· the taxpayer's right to use the licensed materials.

The taxpayer's contractual rights

By virtue of the Transaction Documents, the taxpayer had a right to receive the Manager Group's assistance and cooperation in relation to its role in structuring, proposing and facilitating the Transaction and the provision of assets, services and resources to the stapled security.

However, the Transaction Documents specify that the Relevant Expenditure is being paid for the Manager Group's role in structuring, proposing and facilitating the Transaction, assisting the stapled security in obtaining third party consents, assisting the stapled security with respect to financing and shareholder agreement covenants and agreeing to provision assets, services and resources to the stapled security, rather than being paid for the right to these things. In other words, the Manager Group's provision of assistance and cooperation is akin to the provision of a service, as opposed to the provision of a right.

Accordingly, there is no CGT asset.

Manager Company's contractual rights

Pursuant to the Agreement, the Manager Company had a right to provide resources, and to receive a fee for these resources.

While the termination of the Agreement could potentially trigger CGT Event C2, this would be in relation to the Manager Company as opposed to the taxpayer, and therefore would not come under the scope of paragraph 40-880(5)(f) of the ITAA 1997.

Shares in the taxpayer

Under the Transaction Documents, the Manager Company agreed to sell all of the taxpayer's shares to the Trust B tax consolidated group for the Consideration. The Consideration reflected the net value of the total assets of the taxpayer.

No part of the Relevant Expenditure constituted consideration paid for the shares in the taxpayer.

Accordingly, no part of the Relevant Expenditure formed part of the cost base of the shares in the taxpayer.

Licensed materials

Under the Transaction Documents, the Manager Group agreed to licence various items to intellectual property to the taxpayer. As stated above, any legal or equitable right is a CGT Asset.

The licence therefore could potentially fall under the scope of section 40-880(5)(f) of the ITAA 1997 which would disallow the deduction of the Relevant Expenditure to the extent it is for the licence of the intellectual property, as it would form part of the cost base of the licence should there be a future CGT event in relation to the licence.

However, although there was no separate consideration paid for the licence, and no separate agreements were executed, the licence granted was perpetual, royalty-free and non-exclusive. Accordingly, no part of the Relevant Expenditure was for the licence.

Based on this information, paragraph 40-880(5)(f) of the ITAA 1997 does not operate to limit the deductibility of the Relevant Expenditure under section 40-880 of the ITAA 1997.

Conclusion

For the reasons set out above, Trust B (as head company of the Trust B tax consolidated group), can deduct the Relevant Expenditure under section 40-880 of the ITAA 1997.