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In Healius Ltd v FC of T, the Federal Court held that lump sum payments made by the operator of medical centres to doctors to conduct their practice at these medical centres were on revenue account. The lump sum payments were held not to be capital or capital in nature, but recurrent and ongoing, as the taxpayer consistently tried to engage doctors to meet its ongoing demand for them.
The taxpayer, an operator of medical centres, engaged doctors to practice at these facilities. Between 30 June 2003 and 30 June 2007, the taxpayer made lump sum payments to doctors in return for their promise to exclusively conduct their practices from one of its medical centres, usually for a ﬁve year period.
The Commissioner determined that the lump sum outgoings were of capital or of a capital nature and therefore not deductible and disallowed the taxpayer’s objections to this decision in each relevant year. The taxpayer appealed to the Federal Court.
The court needed to determine if the lump sum payments were on revenue account as payments to secure customers (and hence deductible against assessable income) or were of “capital or of a capital nature” within the meaning of s 8-1(2)(a) ITAA 1997.
The Commissioner argued that the business of the taxpayer was to develop and operate medical centres, with the provision of medical services to the public as a core part of that business. To facilitate that, the taxpayer acquired the doctors’ practice or their goodwill and therefore the lump sum payments were on capital account.
On the other hand, the taxpayer argued that the lump sum payments were part of a process by which it obtained regular returns by means of regular outlay. As such, the outgoings were not paid to establish the structure or organisation of the taxpayer’s business.
The Federal Court held that the lump sum payments were on revenue account and were not capital or capital in nature, but recurrent and ongoing, as the taxpayer consistently tried to engage doctors to meet its ongoing demand for them. It accepted that each payment was for the winning of a customer.
The Court found that the taxpayer did not acquire the doctors’ practice or their goodwill. The payments were rather for the doctors’ promise to conduct their practice as an independent contractor exclusively from the taxpayer’s medical centre for ﬁve years.
The Court also found that the provision of medical services by the doctors at its medical centres was not a component of the taxpayer’s business structure. Instead, the taxpayer owned the premises where the centres were situated, and the equipment and administrative staff provided to the doctors. Whilst the provision of medical services was essential to the business, it was not part of the actual business structure. The business instead provided services and facilities to health care providers who then conducted their own business from the premises.
The Commissioner has appealed against the judgement.
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