BOWDEN & BOWDEN

The parties to this proceeding were the applicants, Bowden & Bowden, and the respondent, the Commissioner of Taxation. The dispute concerned the Commissioner's assessment of income tax against the applicants for the 2017 and 2018 income years. The matter came before Macmillan J of the Federal Court of Australia.

The primary legal issue before the Court was whether the applicants were entitled to a deduction for the expenditure incurred in relation to the acquisition of intellectual property, specifically a licence to use certain software. The Commissioner had disallowed these deductions, asserting that the expenditure was capital in nature and therefore not deductible under section 8-1 of the *Income Tax Assessment Act 1997* (Cth).

Macmillan J reasoned that the deductibility of the expenditure depended on its characterisation. Applying established principles, his Honour considered the purpose for which the expenditure was incurred and the advantage gained by the applicants. His Honour found that the licence granted a right to use the software for a defined period, and the expenditure was incurred to obtain that use, rather than to acquire an enduring asset. Consequently, the expenditure was revenue in nature and deductible under section 8-1.

The Court ordered that the assessments for the 2017 and 2018 income years be set aside and remitted to the Commissioner for redetermination in accordance with the Court's findings.