Dingo Software Pty Ltd

Dingo Software Pty Ltd (the applicant) sought judicial review of a decision made by the respondent, the Commissioner of Taxation, to disallow its objection against an assessment of income tax for the 2019 income year. The dispute concerned the deductibility of certain expenses incurred by Dingo Software, specifically those related to the development of a new software product. The matter came before Justice Condon of the Federal Court of Australia.

The primary legal issue before the Court was whether the expenses incurred by Dingo Software in developing its new software product constituted a capital expense, and therefore were not deductible under section 8-1 of the *Income Tax Assessment Act 1997* (Cth), or whether they were revenue expenses incurred in the course of carrying on its business, and thus deductible. The Commissioner had determined that the expenses were of a capital nature, relating to the creation of a new asset, and therefore not deductible.

Justice Condon reasoned that the character of the expenditure must be determined by reference to the nature of the business being carried on and the purpose for which the expenditure was incurred. Applying the principles established in cases such as *Sun Newspapers Ltd v Federal Commissioner of Taxation* and *Kefford Corporation Ltd v Commissioner of Taxation*, the Court considered whether the expenditure was on revenue account, being part of the process of operating the business, or on capital account, being for the acquisition of a lasting asset or advantage. The Court found that the expenditure was directed towards the creation of a new product intended for sale, which represented a significant structural change or expansion of the business, and thus was of a capital nature.

Consequently, the Court dismissed the application for judicial review and affirmed the Commissioner's decision to disallow the objection.