The payments were in respect of contracts to conduct their practice at medical centres operated by the applicant where doctors would then pay a proportion of billings from patients to the applicant in exchange for use of premises and administrative services for a period, usually of five years.
During the income years ending 30 June 2003 to 30 June 2007 the taxpayer paid doctors lump sums in return, loosely speaking, for their promise to exclusively conduct their practices from one of its medical centres for a period. At the expiry of these agreements some doctors were paid further lump sums to extend the term of the arrangements.
The question was whether the lump sum outgoings were of “capital or of a capital nature” within the meaning of s 8-1(2)(a) of the Income Tax Assessment Act 1997 or whether they were on revenue account being payments to secure customers.
It is not in dispute that the lump sum outgoings were incurred in the course of earning assessable income within the meaning of s 8-1 so that the question of whether they were of capital or of a capital nature would determine whether the taxpayer is entitled to deduct them against its assessable income in the relevant years.
BONUS: See this Quick Tax video for Tax Counsel John Jeffrey’s viewpoint.