Edited version of your private ruling

Authorisation Number: 1012598359292

Ruling

Subject: Deductions: Capital v Revenue

Question 1

Is the taxpayers liability in obtaining the right to hold an entitlement an outgoing that is "incurred" under either limb of Section 8-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

Question 2

Is the outgoing incurred on an entitlement an outgoing of capital nature?

Answer

Yes

Question 3

Does the 'properly referable' test and/or the prepayment rules in Sections 82KZL-82KZO of the Income Tax Assessment Act 1936 (ITAA 1936) apply such that each quarterly instalment is deductible over the course of the quarter that it relates to, resulting in instalments which fall due on 31 May of the relevant income years and that are required to maintain the right to continue holding the entitlement for the three months following each payment, being deductible via apportionment over the eligible service period for that instalment?

Answer

No

Question 4

Is the taxpayer required to apportion the final quarterly instalment over a three month period, or over the remainder or the 10 year licence period?

Answer

No

Question 5

In determining whether the outgoing is of capital or revenue nature, is the relevant outgoing that of an entitlement?

Answer

No

Question 6

Does the fact that the entitlements are subject to forfeiture provisions in the relevant agreement mean that the purchase of the entitlements should be considered to be for a period less than 10 years?

Answer

No

Question 7

Are the instalment payments akin to rent?

Answer

No

Question 8

Do the instalment payments provide a periodical outlay to cover use or enjoyment of the asset for periods commensurate with the payment?

Answer

No

Question 9

Has the Commissioner considered the views in FC of T v Citylink Melbourne Limited 2006 ATC 4404 ('Citylink') to make a determination on capital v revenue?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

The scheme commences on

1 July 2012

Relevant facts and circumstances

The taxpayer operates a business which provides a number of different services some of which require a licence.

All of these services have been offered by the business for a number of years. One of the activities requires the taxpayer to own a number of entitlements.

The entitlements were previously owned by another entity and sub-licensed by the taxpayer. In recent times new State regulatory rules have operated to allow the entitlements to be owned by the taxpayer.

The entitlements are issued for a period of 10 years and may be extended for up to two further years.

The taxpayer paid a non refundable bond in order to participate in the process to obtain the entitlements.

The taxpayer was successful in the process and became liable for the whole of the price of the entitlements acquired

The taxpayer is paying the purchase price of the entitlements by instalments.

In this ruling the phrase 'outgoing' means the total value of the purchase price of the entitlements acquired by the taxpayer through the process inclusive of the bond which was applied towards the purchase price. It also means an instalment or instalments of the purchase price (as the context requires).

Payment conditions for the entitlements are described in the Agreement between the taxpayer and the State. There is State legislation which governs the criteria to obtain, purchase and manage the entitlements. This includes the ability to transfer the entitlements and the process that will happen if the taxpayer/owner forfeits the entitlements.

Relevant legislative provisions

Income Tax Assessment Act 1997

Section 8-1.

Income Tax Assessment Act 1936

Subdivision H

Section 82KZL

Section 82KZMA

Section 82KZMD

Reasons for decision

Question 1

Summary

The taxpayer's liability for the entitlements is an outgoing that is incurred under paragraph 8-1(1)(a) of the ITAA 1997 because there is a sufficient connection between the outgoing and the gaining or producing of assessable income by the taxpayer.

Detailed reasoning

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

More specifically subsection 8-1(1) of the ITAA 1997 states:

8-1(1)

You can deduct from your assessable income any loss or outgoing to the extent that:


(a) it is incurred in gaining or producing your assessable income; or


(b) it is necessarily incurred in carrying on a ^*business for the purpose of gaining or producing your assessable income.

TR 97/7 Income tax: section 8-1 - meaning of 'incurred' - timing of deductions sets out the Commissioner's view of the meaning of the term 'incurred'. As a broad guide, you incur an outgoing at the time you owe a present money debt that you cannot escape (paragraph 5 TR 97/7).

The term 'incurred in gaining or producing your assessable income', is to be read as meaning 'incurred in the course of gaining or producing your assessable income'. In Amalgamated Zinc (De Bavay's) Ltd v FC of T (1935) 54 CLR 295 at p 303, Dixon J said:

"The expression 'in gaining or producing' has the force of 'in the course of gaining or producing' and looks rather to the scope of the operations or activities and the relevance thereto of the expenditure than to purpose in itself."

The courts have held that for there to be a deduction under section 8-1 there must be a sufficient connection between the loss or outgoing and the production of assessable income. The loss or outgoing must be incidental and relevant to the earning of assessable income (Ronpibon Tin NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236).

In this case it is considered that in the year in which the taxpayer obtained the entitlements they had a present money debt pertaining to the acquisition of the entitlements, which is an outgoing incidental and relevant to the taxpayer producing assessable income though the provision of specific services to its clients.

Accordingly, the taxpayer's liability that arose in obtaining the entitlements is an outgoing that is incurred for the purposes of section 8-1(1) of the ITAA 1997.

It is noted that TR 97/7 sets out that for the purpose of section 8-1 of the ITAA 1997 it is sometimes not enough that a loss or outgoing has been incurred and it must also be properly referable to the year of income in which the deduction is sought. Consideration of whether the outgoing is properly referable to the relevant income year is not needed in this case due to the characterisation of nature of the outgoing as capital and thus not immediately deductible, as explained in the answer to question 2 below.

Question 2

Summary

The outgoing incurred on an entitlement is an outgoing of capital nature because it is an asset with an enduring benefit to the profit yielding structure of the taxpayer's business.

Detailed reasoning

The first negative limb of section 8-1 of the ITAA 1997 denies a deduction for a loss or outgoing incurred where it is a loss or outgoing of capital, or of a capital nature (see paragraph 8-1(2)(a)).

There is no statutory definition of 'capital' or 'capital nature'.

The judgment of Dixon J in Sun Newspapers Ltd v. FC of T (1938) 61 CLR 337 (the Sun Newspapers Case) is a leading exposition of the matters examined in order to differentiate whether an amount is capital or revenue in nature.

Accordingly the following indicators, consistent with the matters raised by Dixon J, in the Sun Newspapers Case point towards an expense being 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.'

It must be borne in mind that the statements made by Dixon J are not exhaustive or ultimately definitive of the relevant matters to be considered in each case. For example, the absence of recurrence of a payment suggests that an outgoing is capital in nature, but it is not conclusive (National Australia Bank v. Federal Commissioner of Taxation (1997) 80 FCR 352; 97 ATC 5153; (1997) 37 ATR 378)

The courts have held, in the absence of special circumstances that expenditure is capital in nature where it is made with the view to bring into existence an asset or an advantage whether tangible or intangible for enduring benefit of the business: British Insulated & Helsby Cables v. Atherton (1926) AC 205.

The term enduring was referred to by Rich J at page 547 in Herring v. FCT (1946) 72 CLR 543, who stated that 'by enduring it is not meant that the asset or advantage should last forever. It is a matter of degree and only one element to be considered.'

The full Federal Court in Jupiters Ltd v Deputy Commissioner of Taxation [2002] FCAFC 206, 2002 ATC 4566 (Jupiters) held that the advantage sought by payment of 'special rental' under an agreement between the taxpayer and the Queensland Government was an asset of a capital nature. In the Jupiters case the full Federal Court adopted the following approach (at 2002 ATC 4571):

In the leading case of Colonial Mutual Life Assurance Society Ltd v FC of T (1953) 10 ATD 274 at 283; (1953) 89 CLR 428 at 454 Fullagar J (with whom Kitto and Taylor JJ agreed) said (emphasis in original):

``... The questions which commonly arise in this type of case are (1) What is the money really paid for? - and (2) Is what it is really paid for, in truth and in substance, a capital asset?''

Their honours went on to say (at 2002 ATC 4572):

The nature of the asset acquired (see GP International Pipecoaters Pty Ltd v FC of T 90 ATC 4413 at 4419; (1989-1990) 170 CLR 124 at 137) was exclusivity and freedom from competition within 60 kilometres of the Complex. That advantage was of a lasting or enduring quality. In itself ten years is a substantial period but, as his Honour pointed out, for practical purposes the advantage obtained would extend well beyond that, as was recognised by Jupiters' own accounting treatment. Although there were default provisions applicable to both parties, it would be unreal to see Jupiters as buying a year's exclusivity as it made the Special Rental payments year by year.

In this case the taxpayer directly acquired the entitlements which replaced the entitlements it sub-licenced from another unrelated entity. The entitlements are legal rights which fall within the definition of a 'CGT asset' in section 108-5 of the ITAA 1997.

It is considered that the outgoing was incurred to acquire the entitlement assets because of the enduring benefit the entitlements have to the taxpayer's business. The enduring benefits include:

• The term of the entitlements;

• Without the entitlements the taxpayer cannot offer specific services to its clients;

• The conditions imposed on the entitlements include regional and municipal limits on the numbers of entitlements, giving the holder a level of exclusivity

• The taxpayer may transfer the entitlements in accordance with the provisions of the State Act;

• If the taxpayer defaults in making its instalment of purchase price payments, the proceeds arising from the allocation of an entitlement forfeited (less any State-owned amounts) must be paid to the operator who forfeited that entitlement.

Even though there are default provisions in the Agreement and the State Act which may result in a forfeiture of entitlement(s) if an instalment is not paid, it is considered unrealistic to conclude that the taxpayer is only buying the benefit of the entitlements for a period shorter than the entire 10 year term (see Jupiter above).

In these circumstances, it is considered that the benefit of the entitlements is not refined to any period (referrable to quarterly instalment or otherwise) other than the full 10 year term of the entitlements.

The taxpayer expects that the allocation process is to occur each 10 years so that they will be able to hold a successive series of entitlements such that they can continue to operate the specific aspect of their existing business. In these circumstances, the enduring benefit of the entitlements extends past the initial term.

The taxpayer may pay the purchase price upfront or choose to pay it by interest free instalments. It is considered that taxpayer's election to pay the purchase price of the entitlements by quarterly instalments does not change the character of the outgoing from capital to revenue in nature.

Regard has been made to Federal Commissioner of Taxation v South Australian Battery Makers Pty Ltd 8 ATR 879 (Battery Makers). In Battery Makers, the taxpayer claimed a deduction for full amounts paid under an agreement which also included an option to purchase the leased property. It was held by the Full High Court that the character of the advantage sought by the taxpayer in paying the outgoings that was relevant. It was held that the outgoings were genuinely made in payment of rent and the only advantage to the taxpayer was the right to occupy the premises for the period of the lease.

Unlike the Battery Makers case, the advantage sought by the taxpayer in this case is an enduring benefit arising for the acquisition of entitlement assets for a specific term. The election by the taxpayer to pay the purchase price by instalments rather than by an upfront amount is not considered to be akin to rent paid.

Regard has also been had to the judgments in BP Australia Ltd v. Federal Commissioner of Taxation (1965) 112 CLR 386; (1965) 14 ATD 1; (1965) 9 AITR 615 ( BP Australia ) and National Australia Bank v. Federal Commissioner of Taxation (1997) 80 FCR 352; 97 ATC 5153; (1997) 37 ATR 378 ( NAB ).

In BP Australia the company claimed deductions for amounts paid as trade ties to service station proprietors so that those proprietors would deal exclusively in its products for a fixed period. The payments were calculated by reference to expected sales by the service stations. The Privy Council held that the real object of the outgoing was not the tied network but the orders that would flow from it. The tie agreements were a temporary solution that were of a recurrent nature. The advantage sought was the promotion of sales by up to date marketing methods which had become necessary and the expenditure was therefore deductible as being on revenue, rather than capital, account.

In NAB the bank was required to pay a lump sum (but further amounts were payable if loan quotas were exceeded) to the Commonwealth in order to have the exclusive right to make advances to Australian Defence Force personnel for a 15 year period. The Full Federal Court held that the payment was of a revenue nature as it did not enlarge the framework within which the Bank carried on its activities. Rather, it was incurred as part of the process by which the Bank operated to obtain regular returns by means of regular outlay. The Full Court determined that the payment was in the nature of a marketing expense and had a revenue rather than capital aspect.

Unlike the BP Australia and NAB cases, it could not be said the advantage sought by the taxpayer in this instance was in the nature of marketing. The outgoing incurred by the taxpayer served to advantage that part of its business structure required for the provision of specific services to clients, and not the process by which it operated to obtain regular returns by regular outlay.

Recently, Gordon J in SPI Powernet Pty Ltd v FC of T 2013 ATC 20-416 in determining whether an outgoing was capital (albeit obiter dicta) stated:

90. The decision in
Tata Hydro-Electric Agencies Ltd, Bombay v Commissioner of Income Tax, Bombay Presidency and Aden [1937] AC 685 is instructive. There, the appellants had acquired an agency business from their predecessors and, as part of that acquisition, agreed to assume an obligation the predecessor had to third parties to pay over a percentage of the fees they earned from a particular client. They subsequently sought to claim the payments to the third parties as a deduction. In finding that the payments were not deductible, the Privy Council said (at 695):

[The payments] were certainly not made in the process of earning their profits; they were not payments to creditors for goods supplied or services rendered to the appellants in their business; they did not arise out of any transactions in the conduct of their business. That they had to make those payments no doubt affected the ultimate yield in money to them from their business, but that is not the statutory criterion. They must have taken this liability into account when they agreed to take over the business. In short, the obligation to make these payments was undertaken by the appellants in consideration of their acquisition of the right and opportunity to earn profits, that is, of the right to conduct the business, and not for the purpose of producing profits in the conduct of the business. If the purchaser of a business undertakes to the vendor as one of the terms of the purchase that he will pay a sum annually to a third party, irrespective of whether the business yields any profits or not, it would be difficult to say that the annual payments were made solely for the purpose of earning the profits of the business. (Emphasis added.)

The payments for an entitlement were not made in the conduct of the taxpayer's business but were made for the right and opportunity to earn profits. The entitlements were a prerequisite for the operation of the specific part of the taxpayer's overall business.

It is considered that the outgoing incurred on an entitlement is an outgoing of capital nature.

Question 3

Summary

The 'properly referable' test and/or the prepayment rules in Sections 82KZL-82KZO of the Income Tax Assessment Act 1936 (ITAA 1936) do not apply because the outgoing is capital in nature and is 'excluded expenditure' according to the definition of that term at subsection 82KZL(1) of the ITAA 1936 and the taxpayer can not deduct the outgoing under section 8-1 of the ITAA 1997.

Detailed reasoning

Subsection 82KZMA of the ITAA 1936 states:

Section 82KZMD sets the amount and timing of deductions for expenditure that a taxpayer incurs in a year of income (the expenditure year), if:

(b) the requirements in subsections (2), (3), (4) and (5) are met.

For the reasons set out in question 2, the taxpayer can not deduct the outgoing under section 8-1 of the ITAA 1997.

Subsection 82KZMA(4) of the ITAA 1936 prescribes that the expenditure must not be 'excluded expenditure'.

Subsection 82KZL(1) of the ITAA 1936 lists what the term 'excluded expenditure' means. Relevant to this case paragraph (d) of the definition of 'excluded expenditure' states:

(d) to the extent that it is of a capital nature and cannot be deducted under:

(i) section 355-205 (R&D expenditure); or

(ii) section 355-480 (earlier year associate R&D expenditure);

of the Income Tax Assessment Act 1997;

This case does not involve R&D expenditure under Division 355 of the ITAA 1997 and therefore the outgoing cannot be deducted under either section 255-205 or 355-480 of the ITAA 1997.

As set out in detail in the reasoning to question 2 the outgoing is of a capital nature. In these circumstances the outgoing meets the definition of 'excluded expenditure' under subsection 82KZL(1).

Accordingly, subsection 82KZMA(4) is satisfied and therefore, section 82KZMD does not apply to set the amount and timing of deductions.

Question 4

Summary

The taxpayer is required to apportion the final quarterly instalment because Subdivision H of the ITAA 1936 does not apply.

Detailed reasoning

For the reasons set out in question 3, subdivision H of the ITAA 1936 does not apply and section 82KZMD does not apply to set the amount and timing of deductions.

Question 5

Summary

The relevant outgoing is for the collective entitlements.

Detailed reasoning

The entitlements granted to the taxpayer are numbered but are not otherwise distinguishable.

The taxpayer acquired all the entitlements as part of a single transaction. Payment for the total liability arising from that transaction was agreed in the Agreement. The bond paid prior to the process to obtain the entitlements was offset against the total liability and not attributed to any single entitlement. The Agreement which gives effect to that process is executed in respect of all the entitlements, albeit the entitlements are separately identified. For example, payment terms for the instalments are in respect of the collective entitlements.

In determining whether the outgoing is a loss of capital, part of the 'profit-yielding subject', reference is made to relevant case law.

In Hallstroms Pty Ltd v Federal Commissioner of Taxation (1946) 72 CLR 634 at p648, Dixon J states:

What is an outgoing of capital and what is an outgoing on account of revenue depends on what expenditure is calculated to effect from a practical and business point of view rather than upon the juristic classification of the legal rights, if any, secured employed or exhausted in the process.

State data shows that no business acquired a single entitlement in the allocation process. Each entitlement was acquired in that process. The expenditure on a single entitlement is calculated to be one of the total of such expenditures from a practical and business point of view.

Therefore, characterisation of an outgoing as that of a single entitlement would still be in the context of all the outgoings for the entitlements held by the business.

In Sun Newspapers Ltd & Anor v FC of T 61 CLR 337; 5 ATD 87 ('Sun Newspapers'), Dixon J states

There are, I think, three matters to be considered, (a) the character of the advantage sought, and in this its lasting qualities may play a part, (b) the manner in which it is to be used, relied upon or enjoyed, and in this and under the former head recurrence may play a part, and (c ) 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.

To further support the view that the relevant outgoing is for the collective entitlement, the outgoings are considered in the context of the 'three matters.' While Dixon J was referring to the 'capital v revenue' question, the relevant outgoing is considered as an integral part of that issue.

The 'character of the advantage sought' can be described as the means to provide specific services. 'The manner in which it is to be used' can be described as the operation of the specific services as allowed by all the entitlements acquired. 'The means adopted to obtain it' can be described as the process by which all the entitlements were acquired. That is, the entitlements were all acquired as part of one transaction and used in the taxpayer's business as an aggregate. Therefore, the outgoing is considered to be for the collective entitlements.

It is therefore unnecessary to consider the outgoing for a single entitlement. However, if the Commissioner did consider this to be the relevant outgoing, the conclusion would be the same.

That is, 'the character of the advantage' or 'the manner in which it is used' for a single entitlement is as part of the taxpayer's business. However, 'the manner in which it is used' for a single entitlement is as part of the collective entitlements.

Question 6

Summary

No, the advantage sought by the taxpayer is considered to be an enduring benefit for the 10 year period.

Detailed reasoning

Forfeiture only occurs where there has been breach of the State Act or voluntarily. The conditions which can trigger forfeiture are concerned with regulation and would be known by the taxpayer at the time of the process to obtain entitlements.

At the time the taxpayer incurred the obligations arising under the Agreement, it is considered the advantage sought was the right to acquire the entitlements for a period of not less than 10 years.

It is considered that the outgoing was incurred to acquire the entitlement assets because of the enduring benefit the entitlements have to the taxpayer's business. The enduring benefits are stated at Question 2.

Question 7

Summary

The instalment payments are considered to be a capital payment.

Detailed reasoning

It is was considered that the advantage sought was an enduring benefit unlike in FC of T v South Australian Battery Makers Pty Ltd 8ATR 879 ('Battery Makers'). The election by the taxpayer to pay the purchase price by instalments rather than upfront was not considered to be akin to rent.

The taxpayer contends that the analogy to rent paid by a tenant, such as in Battery Makers is compelling. It is argued that the instalments (other than the final instalment) only secure the right to hold the entitlement for the period commensurate with the payment (the 3 month period). This is because the entitlement is forfeited if the instalment is not paid by the time the next instalment is due. Also no part of each instalment payment secures future use of the entitlement beyond the time when the next instalment is due.

While it is true that an entitlement will be forfeited if an instalment payment is not made, this does not mean the instalment payments are for the 3 month period.

While an entitlement may be forfeited if payment is not made by the next instalment is due, in the Agreement it is not stated that instalment payments are being made in respect of part of the 10 year period for which the entitlement is held.

The instalments are not spread evenly over the period of the entitlement. The instalments are not considered to cover the use of the entitlement for periods commensurate with the payments.

The instalment payments are payments under a deferred payment schedule. The taxpayer can choose to pay part or the whole amount early. The periodic nature of the instalments does not give the entitlements the character of a recurrent rental payment.

The manner of payment to acquire a capital asset is considered by Fullagar J in Colonial Mutual Life Assurance Soc Ltd v FCT (1953) 89 CLR 428; 5 AITR 597:

For it is incontestable here that the moneys are paid in order to acquire a capital asset. The documents make it quite clear that these payments constitute the price payable on a purchase of land, and that appears to me to be the end of the matter. It does not matter how they are calculated, or how they are payable, or when they are payable, or whether they may for a period cease to be payable. If they are paid as parts of the purchase price of an asset forming part of the fixed capital of the company, they are outgoings of capital or of a capital nature.

The payments are not considered to be akin to rent and the payment by instalments does not otherwise affect their capital nature.

Question 8

Summary

The period over which the instalments are to be paid is not commensurate to the period for which the entitlement is granted.

Detailed reasoning

See the third factor considered by Dixon J in Sun Newspapers:

(c) 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 of payment so as to secure future use or enjoyment.

This argument is similar to Question 7. That is, the instalments are payments under a deferred payment schedule and are not considered to cover the use of the entitlement for periods commensurate with the payments.

Question 9

Summary

Yes, but the Commissioner distinguishes between Citylink and this case.

Detailed reasoning

The ruling application asserts that the facts of this case are similar to those in FC of T v Citylink Melbourne Limited 2006 ATC 4404 ("Citylink") and summarized the similarities between the taxpayer's circumstances and Citylink as follows:

The taxpayer asserts the following similarities with Citylink:

• Relevant outgoing under consideration

• Purpose of the outgoing

• Are the rights granted by the relevant State

• Are the outgoings made for use of underlying asset to derive an income stream

• Are the outgoings made to acquire permanent ownership rights of asset

• Does failure to make relevant outgoing result in loss of rights granted

• Does outgoing provide a monopoly, sole exclusivity or freedom from competition to the extent of Jupiters or United Energy

• Do the rights revert to Government at end of period

• Do the rights have an agreed lifespan

The ruling application draws an analogy between the concession fees in Citylink and the instalment payments. In City Link Melbourne Ltd v FC of T 2004 ATC 4945, 67 (and acknowledged in Citylink, 151) it is noted:

There is a danger in arguing by way of analogy if only because analogies are not perfect and may ignore matters which may require the analogy to be distinguished.

The main distinguishing feature between the taxpayer and Citylink is the period for which the right is acquired:

• Payment for the entitlements are for an amount which is payable as a lump sum or as instalments. The instalments are not paid for a specified part of the ten year period and are not considered to be a periodical fee. The relevant State body states 'deferred payment terms refer to a schedule of interest free instalments for entitlements.'

• Citylink, at 141, states:

Clause 3.1 of the Concession Deed stipulates that each concession fee is an annual liability payable semi-annually. For periods less than six months, the amount of the fee is adjusted pro-rata. The amount of the liability for concession fees corresponds precisely to the period to which a concession fee relates. Furthermore, while the concession fees represent a base fee, the additional concession fees were calculated on the basis of additional revenue which was generated within the particular period.

Citylink, 151, referring to the earlier decision, stated:

The Full Court also found the concession fees were a periodical and recurrent expense of conducting the respondent's business operations rather than an expense to acquire a profit-making enterprise.

This passage is referenced to City Link Melbourne Ltd v FC of T 2004 ATC 4945, 70, which states:

With respect to the learned Primary Judge the present is not a case where Transurban agreed to pay a lump sum in instalments, where it would, no doubt, be correct to describe the Concession Fee as being 'a single concession fee'. In the event that the State defaulted in its obligations there would be no obligation thereafter to pay further instalments. Further in certain situations Transurban would, if not itself in default, not be obliged to pay the Concession Fee. In essence the Concession Fee was no different from the rental that would be payable for the parking station lease to which reference was made. To say that if that lease continued the rental was a lump sum because (unless there were rental escalations) it would be possible to calculate the total amount payable does not covert periodic rental to a single lump sum amount having the character of capital. The rental, like the Concession Fee here is payable for the use and occupation of or the right to conduct the operation in periods commensurate with the obligation to make payment. It should, accordingly be seen to be periodical and recurrent and thus a cost of conducting the business operations rather than a cost of acquiring a profit making enterprise.

In contrast to the features of City Link Melbourne Ltd v FC of T 2004 ATC 4945, 70:

• the Agreement does not consider the State defaulting in its obligations and the consequence on the taxpayer's obligation to pay instalments. However, the Agreement may be terminated by agreement in writing between the taxpayer and the Minister.

• As previously stated, the payments made in accordance with the Agreement are not paid for the right to conduct the operation for periods commensurate with the obligation to make payment.

In conclusion, it is considered the Commissioner cannot rely on Citylink to make a conclusive decision on capital v revenue for the taxpayer as it is considered the facts in Citylink and the taxpayer's circumstances are different and a close analogy cannot be made.