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What is the tax treatment for a licence fee paid for operating a petrol station?

09 April 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: One of my clients has paid a licence fee to a petrochemical company for the operation of a petrol station for an indefinite period. How do I handle a transaction like this? Am I able to write this amount off over a period of time?

A: There is in our view not a capital allowance for this licence fee and it will only be deductible if it is revenue rather than capital in nature and deductible per s11(a) ITA. In CSARS v BP SA Pty Ltd 2006 ZASCA 61 (25 May 2006) the court held that a prepaid rental payment which was incurred to secure petrol stations selling its petrol for 20 years, which in our view sounds similar to the purpose of the license fee paid, was connected to the capital structure and not income operations, thus being capital in nature.

As noted you would have to apply the various capital v revenue test to conclude on this matter after determining exact purpose and intention for the payment.

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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