ATO Interpretative Decision
ATO ID 2004/493
Income Tax
Capital Allowances: depreciating asset-cost - expenditure incurred to acquire a patent licenceFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Does the capital expenditure the taxpayer incurred to acquire the licence to a patent form part of the cost of a depreciating asset pursuant to section 40-185 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The capital expenditure that the taxpayer incurred to acquire the licence to a patent does form part of the cost of a depreciating asset pursuant to section 40-185 of the ITAA 1997.
Facts
The taxpayer has acquired a licence for a patent, from the patent holder, for substantial consideration under a Patent Licence Agreement. The agreement allows the taxpayer an exclusive licence to enjoy, commercialise and exploit the patents, trade secrets, licensors' improvements and to manufacture, have manufactured, use, market and sell the products. The agreement also allows the taxpayer to grant sublicences.
Reasons for Decision
The rights a licensee of a patent holds under a Commonwealth patent is an item of intellectual property pursuant to the definition of that term in subsection 995-1(1) of the ITAA 1997. An item of intellectual property is a depreciating asset pursuant to the definition of that term in section 40-30 of the ITAA 1997.
The costs of a depreciating asset include capital amounts that are taken to have been paid to hold the asset (section 40-185 and 40-220 of the ITAA 1997).
Date of decision: 7 June 2004Year of income: Year ended 30 June 2004 Year ended 30 June 2005 Year ended 30 June 2006
Legislative References:
Income Tax Assessment Act 1997
section 40-25
section 40-30
section 40-185
section 40-220
section 995-1
ATO ID 2002/810
ATO ID 2002/812
ATO ID 2002/832
Keywords
Intellectual property rights
Patents
Depreciating assets
Cost of a depreciating asset
ISSN: 1445-2782