Innovative companies are more likely to hold a high proportion of intangible or knowledge-based assets, such as patents and copyrights. Investment in these assets is crucial to innovation and growth.

Unlike tangible assets, however, intangible assets with a statutory effective life can’t be self-assessed to bring their tax life in line with the economic life of the asset. This can reduce the depreciation benefit and increase the cost of investment in these assets.

Changing the tax treatment for acquired intangible assets will make startups’ intellectual property and other intangible assets, a more attractive investment option.

What is changing?

This initiative provides businesses with:

  • A new option to self-assess the tax effective life of acquired intangible assets. This will better align the tax treatment of the asset with the actual number of years the asset provides an economic benefit
  • The option to continue using the existing statutory effective life of the asset.

When’s it happening?

Draft legislation closed for comment on 22 April 2016.

What to do

How this will work in practice

Dane is the founder of InstaFilm Pty Ltd, a startup that is developing a new app that allows users to easily edit and share high-definition movies taken with a smartphone. Dane purchases a patent over a new method for compressing data on a mobile phone.

The statutory life of the patent is 20 years but industry analysis provides evidence that the processor will only generate net cash inflows for five years.

Under the current law, the patent must be depreciated over 20 years.

Under the new arrangements Dane can self-assess the patent’s effective life to be five years. This allows Dane to claim a larger tax deduction over a shorter period than he would have been able to under the old arrangements.



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