SYZMANOVSKI & MILLET

The parties to this proceeding were the applicants, Szymanovski and Millet, and the respondent, the Commissioner of Taxation. The applicants sought to challenge the Commissioner's assessment of income tax for the 2017 and 2018 income years, arguing that certain payments received were not assessable income. The matter came before Stevenson J of the Federal Court of Australia.

The central legal issue before the Court was whether the payments received by the applicants from a company constituted assessable income under section 6-5 of the *Income Tax Assessment Act 1997* (Cth), or whether they were capital in nature and therefore not assessable. This required the Court to consider the characterisation of the payments in light of the agreements under which they were made and the surrounding circumstances.

Stevenson J applied the established principles for distinguishing between income and capital, noting that the character of a receipt is determined by the nature of the transaction giving rise to it. His Honour examined the terms of the agreements, the intention of the parties, and the overall context of the transactions. The Court found that the payments were made in consideration for the applicants refraining from competing with the company and for the transfer of certain intellectual property rights, which were considered to be enduring rights. Consequently, the payments were held to be of a capital nature.

The Court therefore allowed the applicants' appeal, setting aside the Commissioner's assessments for the 2017 and 2018 income years and remitting the matter to the Commissioner to recalculate the applicants' tax liabilities on the basis that the disputed payments were not assessable income.