Due to a regulatory change, a hotel owner which had been sharing in the revenues generated from 18 gaming machines on its premises was required to bid for 18 assignable gaming machine licences (“GMEs”) in order to be able to continue with the 18 machines, as a result of which it was allocated 18 GMEs that permitted it to operate gaming machines at its premises for 10 years.
After finding that the $600,300 payable in annual instalments to the state government for the allocation of the 18 GMEs was a capital expenditure, the Court went on to find that the expenditure was not deductible under s. 40-880 of the Income Tax Assessment Act 1997(Cth) as expenditure incurred to preserve but not enhance the value of goodwill in relation to a legal or equitable right whose value was solely attributable to its effect on goodwill, stating (at para. 52):
The majority erred in considering the effect on the goodwill of the integrated hotel business and … in conflating goodwill with the going concern value of the business. Here the GMEs were assets which could be individually identified and quantified in the accounts of the Trustee's business, which had a value quite apart from any contribution that they may have made to goodwill. That value resided in their capacity to generate gaming income and the fact that they could be sold and transferred to other venue operators, albeit subject to some restrictions and qualifications.