Issue
Is the taxpayer entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), for expenditure incurred in purchasing a cray pot entitlement?
Decision
No, the taxpayer is not entitled to a deduction under section 8-1 of ITAA 1997, for expenditure incurred in purchasing a cray pot entitlement.
Facts
The taxpayer purchased an entitlement for a cray fishing pot. Under a purchase agreement, the taxpayer transferred the pot entitlement to a person holding a cray fishing licence. The taxpayer receives an annual lease payment for the transfer of the pot entitlement.
Reasons for Decision
Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.
The purchase of a cray pot entitlement would be regarded as capital expenditure. According to the decision in British Insulated & Helsby Cables Ltd v. Atherton [1926] AC 205, if an enduring benefit is gained, then the expenditure is to be regarded as capital. Purchasing the cray pot entitlement is a 'once only' expense. The taxpayer has gained an enduring benefit in the form of lease income.