What is Intellectual Property (IP)?

It's a category of property that consists of intangible assets resulting from a creation of one’s mind or proprietary knowledge. Common types of IP are trademarks, designs, brands, inventions and even the application of an idea.

Why should you know about it?

If you are running (or are a part of) a business that is likely to create, acquire or purchase rights to some form of IP, it is important to consider how to protect it and if you need to apply to do so via the Australian Government agency IP Australia.

While some types of IP have some form of automatic protection (e.g. copyrights, trade secrets, circuit layouts), other types of IP may need to be applied. For example, patents or trademarks may be applied to help you protect these valuable income-earning IP before you start using them in the public domain. You will need to consider speaking to a lawyer or patent attorney that specialises in IP, as obtaining professional advice tailored to your circumstances is critical.

From a taxation perspective, any costs a business incurs to protect Intellectual Property is generally treated as an intangible depreciating asset, available to be claimed as a depreciation expense taxation deduction to the business. These depreciation expense claims may be claimed over different effective life periods depending on the type of IP.

Recently, an interesting development in relation to taxation deductions for IP expenditure is from the Government measures announced in the 2020-21 Budget. These measures are targeted towards boosting business confidence and spending.

Important to note here is the ‘Temporary full expensing of capital assets’ measure under which IP, as a depreciating asset, qualifies as an eligible capital asset. Under this new measure, eligible businesses with an annual aggregated turnover of less than $5 billion will be able to immediately deduct the business portion of the cost of IP (where traditionally it has had to be claimed for over a period of 25 years).

This applies to eligible new assets purchased and ready for use for a taxable purpose between 7.30pm AEDT on 6 October 2020 and 30 June 2022.

So, if your business is considering protecting IP, which is of long-term value to the business, the good news is you may be able to get a taxation deduction in full when the IP costs are incurred between now and up to 30 June 2022.

This information provided in this post is of a general nature and does not constitute specific taxation advice. For detailed taxation advice, you should consult with a qualified accountant about your specific circumstances. Call WSC Group today on 1300 365 125.