A taxpayer has managed to satisfy the AAT that he incurred expenditure in acquiring software under licence.
The taxpayer claimed deductions for the software licence fees in the 2004 and 2005 income years. The fees, which totalled just over $305,000, were paid to a resident of South Africa. The Commissioner disallowed the deductions on the basis that the expenditure had not been incurred.
In finding for the taxpayer and rejecting the Commissioner’s submission that the taxpayer was not a credible witness, the AAT said it was particularly significant that the taxpayer had acquired the software and later paid almost $80,000 for upgrades. Other relevant factors in the AAT’s decision were:
- although the software licence agreement was badly drafted, the AAT said it was not a sham and was enforceable (although certain clauses were not enforceable as they stood);
- the fact that financial statements for the 2 years in question may have indicated a lack of commercial sense in obtaining the software, a longer term view of the transaction may have led to a different conclusion;
- although payment of the licensing fee by a series of travellers cheques was highly unusual, the AAT said it was credible in view of the circumstances prevailing in South Africa;
- the taxpayer’s failure to produce certain documents was also insignificant as the AAT considered some of the requested documents were irrelevant and it was not unreasonable for others not to be produced; and
- the non-appearance of 2 key South African witnesses could be explained by their refusal to provide evidence that may have revealed breaches of South African exchange control regulations.
(AAT Case [2012] AATA 20, AAT, Ref Nos 2008/5347 and 2008/5348, Fice SM, 16 January 2012.)
[LTN 11, 18/1]