In the modern world, more and more of the value of businesses, and the value of the transactions that businesses conduct, are represented by intellectual property. And once value is realised, and therefore revenue created, taxation is never far behind.
Understanding the tax law treatment of intellectual property (IP) is essential for businesses so they do not miss out on opportunities regarding revenue deductions, including capital allowances, reducing capital gains, and possibly accessing valuable R&D concessions.
What’s the tax law meaning of IP? Under tax law, within the capital allowance rules, intellectual property is a depreciating asset. For the ATO, the term “intellectual property” is defined (see section 995-1 here) as an item that “consists of the rights (including equitable rights) that an entity has under a Commonwealth law as:
the patentee, or a licensee, of a patent; orthe owner, or a licensee, of a registered design; orthe owner, or a licensee, of a copyright;
or of equivalent rights under a foreign law.” For example, software code that you commercialise will typically constitute some form of copyright.
The definition of intellectual property for depreciation purposes is much narrower than, for example, the accounting concept of IP. Other assets such as trademarks and confidential information are treated differently for income tax purposes.
One item of IP that taxpayers may overlook is the IP behind their own website. The ATO has seen fit to issue more guidance on this area of IP and its tax treatment.
Government changes to IP As part of the government’s National Innovation and Science agenda, changes were announced in December 2015 to the depreciation of intangible assets. Under these changes, from July 1, 2016, businesses are able to:
self-assess the tax effective life of acquired intangible assets such as patents, to better align the tax treatment of the asset with the actual number of years it provides an economic benefit, andcontinue to have the option to use existing statutory effective life to depreciate intangible assets.
Tax & Super Australia is hosting a webinar on March 15 titled “Taxing Intellectual Property”. The 60 minute webinar will identify and define the various forms of intellectual property and show how to apply the appropriate income tax treatment. For example, recent ATO guidance on website development costs seems to contradict previously held views. The good news however is that in some cases you may still be able to claim the $20,000 instant asset write-off! Find out more here (also see above).
Tax & Super Australia recently hosted a webinar “Taxing Intellectual Property” on Wednesday March 14, 2017. A recording of the webinar can be found on this page.
# [intangible assets], [intellectual property], [IP], [tax and IP], [trademarks]
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