Stella was offered a lease and license agreement to operate a fast-food outlet in suburban Brisbane. Under the agreement, payments were required to be made for a base rent amount of $80,000 per year and a “percentage rent amount” calculated as 11% of gross sales per year. The agreement included an option to make a fixed upfront payment that would reduce the specified percentage from 11% to 8% of gross sales. The agreement did not allow for a refund of this upfront payment.

Stella made the upfront payment of $600,000 on 1 July 2020. The payment was described in the letter of offer, agreement and tax invoice as “prepaid rent”.

Required:

Discuss whether the upfront payment incurred by Stella would be allowable as a deduction during the year ended 30 June 2021 under s8-1 ITAA1997. Support your discussion with reference to legislation, case law and taxation rulings. (Question is about Australian taxation law)