Taxation Ruling

IT 2086

Lump sum receipts re granting of licences - application of recent court decision

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FOI status:

FACTS

In a decision in the Supreme Court of Queensland, Kwikspan Purlin System Pty Ltd v FCT reported at 84 ATC 4282, 15 ATR 531, D.M. Campbell J. accepted that four amounts totalling $535,000 received by the taxpayer company as lump sum amounts in consideration for the granting of licences in respect of patent rights and the provision of "know-how", were not assessable income of the company.

2. His Honour found that the taxpayer company was not in the business of dealing in patents - it owned patents for a multi-holed purlin and girt system in respect of which it granted exclusive licences in various parts of Australia. The licences extended for periods up to 16 years and separate agreements called for initial lump sum payments and for payments of royalty depending on user.

3. The Court took the view that, in the circumstances of this case, the lump sum receipts were capital in character and not assessable under sub-section 25(1) of the Act. His Honour also accepted that there was no profit-making scheme for the realisation of the capital assets (the patents) so that the second limb of paragraph 26(a) did not have application.

RULING

4. The decision of the court is seen as one turning on its own facts. In the circumstances of this case it is accepted that the lump sum payments are of a capital nature.

5. No appeal has been lodged against the decision of the Supreme Court.

COMMMISSIONER OF TAXATION
15 June 1984

References

ATO references:
NO J207/205 P5 F195
BO 4/90403 276 (Brisbane)

Date original memo issued:
23 May 1984

Subject References:
ASSESSABLE INCOME
LUMP SUM RECEIPTS RE LICENCE AGREEMENTS

Legislative References:
25(1)
26(a)

Case References:
Kwikspan Purlin System Pty Ltd v FCT
84 ATC 4282
15 ATR 531