Decision impact statement
Applicant and Commissioner of Taxation
Venue: Administrative Appeals Tribunal
Venue Reference No: 2008/5347 & 2008/5348
Judge Name: SM Fice
Judgment date: 16 January 2012
Appeals on foot: No.
Decision Outcome: Adverse
Impacted Advice
Impacted Practice Statements:- None
Subject References:
Outgoing incurred
Software licence fees
Personal services income deductions
Burden of proof
Précis
Outlines the ATO response to this case which concerned whether the taxpayer's personal services entity incurred any outgoings in the 2004 and 2005 income years on software licence fees under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).
Brief summary of facts
Following a personal services income audit, an issue arose about whether the taxpayer was entitled to deductions for software licence fees in the 2004 and 2005 income years against his personal services income.
However, the Commissioner accepted before the Tribunal that deductions were allowable against the taxpayer's personal services income for the relevant years if the taxpayer could establish that the licence fees were incurred by his personal services entity (KRI).
At issue was whether the taxpayer could discharge the burden of proof that KRI had acquired software under a licence agreement with Mr Michael Kirkpatrick, a South African national, and had either paid, or come under a presently existing legal liability to pay, licence fees for the software in the relevant years.
Issues decided by the tribunal
The Tribunal held that KRI incurred software licence fees in each of 2004 and 2005 income years. There was a presently existing liability to pay the fees in those years, and the Tribunal was also satisfied that the fees were paid in those years.
Notwithstanding a number of evidentiary difficulties, the Tribunal was satisfied that the taxpayer and KRI acquired the relevant software, and that there was a software licence agreement signed by KRI and Mr Kirkpatrick which stated that KRI was liable for software licence fees in the claimed amounts for the relevant income years.
The taxpayer gave evidence that, when he was a resident of South Africa, he accumulated foreign currency traveller's cheques on frequent overseas travel, even though in excess of amounts permitted under South Africa's strict exchange controls. The Tribunal was satisfied on the balance of probabilities that the taxpayer had accumulated traveller's cheques in sufficient quantity to pay Mr Kirkpatrick the relevant amounts of the licence fees, and that the taxpayer's sister-in-law in South Africa had paid those amounts in the relevant income years.
ATO view of Decision
The ATO accepts that it was reasonably open to the Tribunal on the evidence before it to find that the taxpayer had satisfied the burden of proving that KRI had a presently existing liability to pay the licence fees, and that the fees had been paid to Mr Kirkpatrick, in the 2004 and 2005 income years.
Administrative Treatment
Implications for ATO Precedential documents (Public Rulings & Determinations etc)
None
Implications for Law Administration Practice Statements
None
Court citation:
[2012] AATA 20
2012 ATC 1-041
(2012) 87 ATR 233
Legislative References:
Administrative Appeals Tribunal Act 1975 (Cth)
37(2)
Exchange Control Regulations 1961 (South Africa) Regulations
1
2(4)
2(5)
Income Tax Assessment Act 1997
8-1
Income Tax Assessment Act 1936
51(1)
Taxation Administration Act 1953
14ZZK
Case References:
Briginshaw v Briginshaw
(1938) 60 CLR 336
[1938] HCA 34
Coles Myer Finance Limited v FC of T
(1993) 176 CLR 640
[1993] HCA 29
25 ATR 95
93 ATC 4341
Danmark Pty Ltd v FC of T
(1944) 7 ATD 333
Evans v FC of T
(1988) 88 ATC 4771
19 ATR 1784
FC of T v Dalco
(1990) 168 CLR 614
[1990] HCA 3
20 ATR 1370
90 ATC 4088
FC of T v James Flood Pty Ltd
(1953) 88 CLR 492
Franklins Pty Ltd v Metcash Trading Ltd
(2009) 76 NSWLR 603
[2009] NSWCA 407
Jones v Dunkel
(1959) 101 CLR 298
[1959] HCA 8
MacCormack v FC of T
(1979) 143 CLR 284
[1979] HCA 18
79 ATC 4111
9 ATR 610
Macmine Pty Ltd v FC of T
(1979) 24 ALR 217
9 ATR 638
79 ATC 4133
New Zealand Flax Investments Limited v FC of T
(1938) 61 CLR 179
Nilsen Development Laboratories Pty Ltd v FC of T
(1981) 144 CLR 616
11 ATR 505
81 ATC 4031
Saunders v FC of T
(1988) 88 ATC 4349
19 ATR 1289
Steinberg v FC of T
(1975) 134 CLR 640
75 ATC 4221
5 ATR 565
Tisdall v Webber
(2011) 122 ALD 49
[2011] FCAFC 76
Trautwein v FC of T
(1936) 56 CLR 63
[1936] HCA 77
Watson v FC of T
(1999) 99 ATC 5313
[1999] FCA 1796
43 ATR 549