With COVID-19 dominating our lives, most of us have been consumed with adapting our lifestyles to the ‘new normal’ mode of operation. Whether you’re still working remotely or just getting kids back to school, it’s been a testing time for all.

This unique period of time has seen the weeks fly by in a blur, and without seemingly any warning we are suddenly on the precipice of the end of the financial year. Now is the time to stop and take a look at your business to ensure that you are taking advantage of the Federal Government’s Instant Asset Write Off (IAWO) legislation, especially with regards to Intangible Assets.

What is the Instant Asset Write Off (IAWO)?

Part of the Federal Government’s COVID-19 Economic Stimulus Package, the Instant Asset Write-Off allows small businesses (with an annual turnover of less than $500 million) to claim immediate deductions (up to an amount of $150,000, from 1 July 2020 this reduces to $1000) for asset purchases.

It is hoped that by raising the IAWO threshold to include all businesses with aggregated annual turnover of less than $500 million (up from $50 million) until 30 June 2020, an additional 5,300 businesses will be able to access IAWO. Click here if you would like to read more about this IAWO.

What Assets are Eligible for the Instant Asset Write Off (IAWO)?

Eligible assets include new assets that can be depreciated under Division 40 of the Income Tax Assessment Act 1997, acquired after the announcement and first used or installed by 30 June 2021. These include tangible assets such as plant, equipment and specified intangible assets.

Whilst much has been discussed across media about the physical assets that form part of this legislation, it’s imperative to know that this IAWO also includes copyright, designs and patents.

Why is it Important to Include Intangible Assets?

Many small businesses don’t utilise a lot of tangible assets, such as plant and equipment, however in comparison, they do tend to use and rely on their intangible assets such as their intellectual property in designs, in-house software, rights in mining, quarrying or prospecting and licenses. Given how much businesses leverage these types of assets, it is astute to ensure these costs are claimed as much as possible to better the cash flow and overall financial position of the business throughout this challenging time.

However, it is important to note that the inclusion of intangible assets in the regime is much narrower than it is for tangible assets (Div 40 (s4030(1)(c))).

Intellectual Property Assets and the Instant Asset Write off

Intellectual Property Assets Included

The items of intellectual property that qualify as intangible assets that can be depreciated (s40-30(2)(c) include:

  1. The patentee of a patent
  2. The owner of a registered design
  3. The owner of copyright, or
  4. A licensee of a patent, registered design or copyright.

Such intellectual property rights are statutory rights and as such the deduction is available to the person who possesses the rights under a law of Australia, the holder of the item (s40-40).

Deductions may be available for the expenditure incurred in seeking to obtain a right to intellectual property (s40-84D(2)(d)(vi)), such as a Design registration under the Designs Act 2003. They may also be available for the decline in value of intellectual property (s40-25).

Registration of Designs

A design registration may be an appropriate way to protect your intangible intellectual property. It aims to protect designs that have an industrial or commercial use, and registered design gives the holder of the asset the exclusive rights to commercially use, licence or sell it.

The design is what makes a product look the way it does and when applied to a product, it gives it a unique appearance. It includes shape, configuration, pattern and ornamentation.

There are two stages in the design registration process, with ‘registration’ and ‘certification’ occurring at different stages:

  1. Registration, which must be lodged before the design is in the public domain.
  2. Once registered, the holder can request that the Design be examined. And if it passes examination, it is then certified.

Registration protects your design for five years from the date the application was filed and can be renewed for a further five years.

 

Intellectual Property Assets NOT Included

Unfortunately, not all intellectual property assets qualify as depreciating assets. The definition of intellectual property for the purpose of the regime does not include other forms of non-depreciating intellectual property, such as trade marks, customer lists, trade secrets, confidential information etc. Expenditure in respect of such forms of intellectual property will not qualify for the capital allowance under Div 40.

Specialist advice is the best way forward

Determining which 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. 

Antcliffe Scott Lawyers. Written with the assistance of Angela Behlevanas of Richard Beck & Co, Chartered Accountants.

 

** Disclaimer: The above information is general in nature and does not constitute any legal or accounting advice. For any financial and accounting queries please contact Angela Behlevanas (Richard Beck & Co, Chartered Accountants). For any legal queries please do not hesitate to contact us here at Antcliffe Scott.