- An increasingly digital market has seen Intangible Assets grow exponentially in terms of their role and value in a business
- Intangible Assets represent up to 75% of business investment
- It’s imperative businesses claim eligible Intangible Assets before the end of the Instant Asset Write Off
- With so many businesses investing in Intangible Assets, why does the Instant Asset Write Off have such a narrow scope for eligibility for deduction?
With eligible businesses able to claim immediate deductions for asset purchases up to $150,000 through the Federal Government’s Instant Asset Write Off (IAWO) legislation, much has been discussed about the purchase of physical assets of a business, but what about the Intangible Assets?
Whilst Intangible Assets have traditionally played a smaller role than physical assets in a business, an increasingly digital and competitive market has seen their role and value in a business grow exponentially.
According to Alyssa Antcliffe, Principal Lawyer at Antcliffe:Scott, although many businesses don’t utilise a large amount of physical assets, such as plant and equipment, they do use and rely on Intangible Assets such as their intellectual property in designs or in-house software to a much larger extent.
She explains, “With numerous industries such as IT, software, pharmaceutical, commercial services and more having a high proportion (in some cases up to 75%) of their business investment in intellectual property, it’s imperative to know what intangible asset costs can be claimed as part of the Instant Asset Tax Write Off, from copyright through to designs and patents.”
It’s clear that now is the time for businesses to ensure they are taking advantage of the Federal Government’s Instant Asset Write Off (IAWO) legislation, especially with regards to Intangible Assets.
Given the amount businesses leverage Intangible Assets such as intellectual property in designs, in-house software, rights in mining, quarrying or prospecting and licences, it is imperative that businesses claim these costs where possible to better the cash flow and overall financial position of the business throughout this challenging time.
However, according to Alyssa, establishing the Intangible Assets that qualify for deduction as part of the Instant Asset Write Off can cause confusion due to the limited scope of eligibility.
She elaborates, “Unfortunately, not all intellectual property assets qualify as depreciating assets and the inclusion of Intangible Assets in the regime is much narrower than for tangible assets. The items of Intellectual Property that qualify as Intangible Assets that can be depreciated include:
- The patentee of a patent,
- The owner of a registered design,
- The owner of copyright, or
- A licensee of a patent, registered design or copyright.
In addition, deductions may also be available for the expenditure incurred in seeking to obtain a right to intellectual property and for the decline in value of intellectual property.”
Determining which Intangible Assets are eligible for the Instant Asset Write Off is not a straightforward task. Given the many exceptions and rules to consider under the Income Tax Assessment Act, in conjunction with the regimes introduced as part of the economic response to the CoronaVirus, this is not an issue that can be navigated through easily.
That’s why it is prudent to seek specialist accounting and tax advice in relation to the purchase and depreciation of business assets, the timing of such deductions and how your business can leverage the Instant Asset Tax Write Off to ensure your business starts the new financial year with its best foot forward.